In the UK Telegraph today, Henri Guaino, a key adviser to French President Sarkozy, is quoted as saying: “The euro at $1.50 is a disaster for the European economy and industry”. We guess the silence on the EUR strength was too much for the French to handle. Overall, rhetoric around the USD weakness has been relatively civil and sporadic. Japanese policy makers, who are usually the first to verbally intervene on JPY behalf, have been indecisive. The BoC has become slightly more vocal on the CAD in their accompanying statement yesterday, noting that continual CAD strength was acting to stymie growth and hold down inflationary pressures. The CAD comments were the triggered to yesterdays FX movement. South of Canada, Brazil announced yesterday a 2% tax on foreign capital inflows, which the secondary effect was the weakening of the BRL. Interestingly the two of the biggest currency performances in recent months have been the AUD and NZD. In the RBA October board meeting minutes, the central bank acknowledges that AUD appreciation would have a negative effect on the domestic economy but was actually the product of a recovering economy. And in New Zealand, after some hawkish rhetoric last month, RBNZ Governor Bollard was unexpectedly reserved about the NZD’s strength today, saying “NZD (strength) is not necessarily an obstacle to raising the cash rate”. Despite official’s effort to play down the effect of a stronger underlying currency, the drag on growth and depression of inflation in the longer term undeniable. A comment that sent the NZDUSD back above the 0.7500 level. And while the Eurogroup meeting failed to mention the EUR, with the Novembers G20 meeting around the corner, markets expect finance ministers to voice their dislike of current FX levels. Should the EURUSD trade above the critical 1.5000 and Gold closer to the $1070oz level near term, we would expect the rhetoric, aimed at halting currency strength, to increase exponentially. Markets are generally range bound and with the light calendar day ahead we don’t expect them to breakout of this funk. Asian regional equity indexes have set a slightly negative tone, but we expect markets to recover, as better than expected corporate earnings (Morgan Stanley, Wells Fargo and Boeing) hit the wires. In the European session, markets will be focused on the BoE MPC minutes and members votes on QE going forward. We would expect that the MPC held steady in October in order to wait for guidance from November’s Inflation report. In our view, the GBP direction depends solely on the prospect of QE expansion in November. Also out of the UK, October’s CBI industrial trends survey should support evidence that the recovery in the manufacturing sector is starting to falter.


Today's Key Issues (time in GMT):

08:30 GBP BoE MPC minutes, vote Oct 9-0 prior
10:00 GBP CBI industrial trends, total orders, net balance Oct -48 prior
16:00 USD Richmond Fed President Lacker (FOMC voter) speaks at a journalism workshop on economics
18:00 USD Fed Beige Book released
20:30 USD Boston Fed President Rosengren (FOMC non-voter) gives welcoming remarks at bank conference

The Risk Today:

EurUsd Consolidation between 1.4840 and 1.4967 continues. Now trading back below 1.4967 at time of writing,. There seems little to drive this pair convincingly in either direction, therefore we are watching the 1.4887 -1.5000 range (1.5060 channel resistance). 

GbpUsd 1.6320 support level held well yesterday (1.6329 the low), and the pair bounced strongly to again test 1.6468 resistance. A break above 1.6500 should pave the way for a move to 1.6570, whilst a break below through 1.6221 will bring fresh selling down to 1.6127 and 1.6038 thereafter. 

UsdJpy Some rather intricate intraday trading to be had on USDJPY with a 72 hour downtrend in play which could attract shorting at 90.60 with stops at 90.90, followed by the 2 week uptrend players getting long down at 89.70 with stops at 89.40. Very simple trading with very simple risk management. 

UsdChf Approaching yesterdays lows at 1.0083. Downtrend is still intact and after failing to remain above 1.0123 (support now turned resistance), parity now seems ever more certain (possibly a return to the 2008 low at 0.9640). Expect fresh selling at 1.0186, as only a clear move above that 1.0250 resistance can be viewed as bullish for the pair. 

Resistance and Support

1.5590 1.6800 93.10 1.0250
1.5346 1.6740 92.50 1.0186
1.5000 1.6570 91.80 1.0123
1.4958 1.6500 90.65 1.0099
1.4876 1.6221 89.70 1.0037
1.4842 1.6127 88.59 1.0010
1.4720 1.6038 88.00 0.9889
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot