USD - The USD is stronger this morning against all major currencies as a result of the third currency intervention of the year in Japan. This week's economic calendar will be dominated by three major events: the ISM tomorrow, the FOMC meeting ending on Wednesday, and non-farm payroll data on Friday. Following a few positive surprises since the last FOMC meeting (notably improving ISM figures, payrolls back above 100,000, and uplifting Q3 GDP figures with gains of 2.5% q/q annualized), QE3 may be off the table. In spite of some of the more dovish committee members speaking out in favor of further QE, a majority for such measure is not expected to emerge. However, the FOMC is likely to retain a bias, restating that it will continue to assess the economic outlook...and is prepared to employ its tools as appropriate. The manufacturing ISM index for October should increase modestly for the second month in a row to 52.5 from 51.6. Over the past month, local business surveys have largely pointed towards improvement in the data and industrial production is showing positive signs. On Friday, the payroll figure is forecast to show a moderate gain in employment. While jobless claims have stabilized in the past month, we are still not seeing the considerable decline associated with robust economic growth. Non-farm payrolls and private payrolls are expected to increase by 90 and 110, respectively. However, this will not be enough to support a drop in the unemployment rate with it expected to remain unchanged at 9.1% for the fourth month in a row.
EUR - Euro gains continue to moderate following last week's rally after broad agreement was reached among European leaders for a rescue package for Greece and for further measures to shore up region's finances. The single currency slid below $1.40 today as the dollar strengthened broadly after Japan intervened in currency markets to weaken the yen. Focus is also shifting to Italy as 10-year bond yields rose above 6% today, the highest levels since last August when the ECB intervened. The government of Italian Prime Minister Berlusconi, already under pressure for a series of scandals, faces increasing doubts about his administration's sustainability. Given this, the relief rally may prove temporary if the region does not come up with a credible plan to address the next Greece style flare up on the horizon.
GBP - The pound declined this morning by the most in three weeks against the dollar after reports showed business expectations slumped and U.K. house prices fell. Despite this morning's move, the pound remains near the highs not seen since the beginning of September. Tomorrow's GDP reading, expected to come in at 0.3%, should provide some gauge as to whether or not the BoE will continue to stay on the sidelines or actually lower rates in the near term.
JPY - JPY is the weakest of the majors, having lost over 5.5% vs. the USD immediately following intervention from the Ministry of Finance. JPY has since strengthened and is currently down roughly 2.5%. Rumors are circulating that the intervention amounted to sales of yen ranging between ¥3trn and ¥6trn, however the actual figures remain unconfirmed. The last intervention, on August 3rd, was initially estimated at ¥1trn, though subsequent data proved the true figure to be closer to ¥5trn. Officials had stepped up the frequency of their interventionist rhetoric late last week, with market participants expecting a heightened probability of action following the announcement of the Eurozone deal. Authorities intervened in August as USDJPY fell below 78.00, which was seen to be a key threshold at the time. This intervention followed several trading sessions in which movement in USDJPY fell below 76.00.
CAD - The CAD pared some of its recent gains in early trading, but remains slightly stronger than the USD. The decline came after Japan unilaterally intervened in the currency market to weaken the safe-haven JPY, prompting rattled investors to shift capital into the USD. A negative outlook for the global economy from the OECD has also weighed on the growth-sensitive loonie as the price of oil, Canada's main export, declined. Nevertheless, Canadian GDP was released this morning slightly better than expected on an annualized basis, and a relatively positive outlook for the Canadian economy will keep the CAD supported in the near term.
MXN - The Mexican peso posted its biggest weekly gain since May 2009 after positive US consumer confidence data spurred optimism for Mexico's exports. The US imports 80% of Mexico's exports, therefore, any positive US economic data will likely trigger rallies in the peso. The USD/MXN traded over 3.3% lower last week. Should the pair break the critical resistance of 13.00 in the next several days, we may see further MXN strengthening in the near term.
AUD - The AUD has receded from its recent highs over 1.07 against the USD after the BoJ intervention and on renewed prospects that the RBA may ease monetary policy in the near term. Recently, investors had increased bets that RBA Governor Glenn Stevens would cut interest rates as soon at the Bank's meeting set for this Tuesday. However, the futures market is currently pricing in a cut before the end of the year with an 84% certainty versus a 100% probability as recently as October 26th. While a cut in Australian interest rates would surely weigh on the Aussie in the near term, the Aussie's G10-leading yield will likely still remain intact.