USD - In the FX market all eyes continue to be on the crisis in the Eurozone. The creation of a broad majority government in Greece might take some imminent pressure off the euro, but the political situation in Italy is still a major concern. This week should be relatively quiet in terms of US data releases, following last week's overload of events. On Thursday, trade balance figures will reveal whether exports are starting to pick up the pace. However, a major shift in the balance is not to be expected. Additionally, the University of Michigan consumer confidence should remain largely unchanged, as this month's equity gains should cancel out the recent increase in gas prices. Following last Wednesday's FOMC meeting, quite a few Fed speeches are to be expected this week, with both hawks, such as Plosser and Kocherlakota, and more dovish leaning members, including Evans and Yellen, speaking. Additionally, Chairman Ben Bernanke is due to speak on Wednesday.
EUR - The development in Greece continues to be in focus. Greek PM Papandreou managed to win the confidence vote late Friday night, but the discussion on who should lead Greece continued over the weekend. The New Democracy, the main opposition party, stated that they would support Greece's bailout package and austerity measures, if Papandreou would resign. Late last night it was reported that the two largest parties had reached an agreement on forming an interim national unity government and that Papandreou will step down. The two leaders Papandreou and Samaras are expected to announce the new leader later today. There is speculation that the frontrunner is the former ECB Vice President Lucas Papademos. The unity government will start implementing the EU/IMF package paving the way for the sixth disbursement to be released before mid December. Downside risks to EUR/USD in the cards this week, not least as the recent weak European numbers are expected to continue in the weeks ahead.
UK - In the UK, the Bank of England's monthly meeting will probably not be a big market mover, as the second round of quantitative easing was announced last month, and the program is on schedule. A rate cut may have been discussed again, but it is unlikely that the BoE will lower the base rate further, as it would have very limited economic impact. UK GDP rose 0.5% in Q3, compared with a 0.1% increase in Q2. It appears that the increase was due partly to one-off factors and that underlying growth remains weak. The Bank of England's Markets Director Paul Fisher said that the pace might not be sustained and there is a chance of stagnation in the fourth quarter. The recent decline in the PMI is quite worrying and the risk of a mild recession cannot be excluded. Manufacturing and industrial production data this week should be interesting to follow.
JPY - A week ago Japanese authorities intervened in the currency market to weaken the Yen, that was trading at record highs versus the US Dollar. The USD/JPY peaked above 79.50 but pulled back afterwards to 78.00. This is a typical post-intervention phenomenon as it shows investors who were previously long USD/JPY were more than willing to offload their holdings as soon as the BoJ were willing to buy. It's likely that the intervention, given its size (8T yen), reduced stress in USD/JPY but if new shocks resurface, the Bank of Japan will reappear but likely at lower levels.
CAD - CAD is up 0.2% vs. the USD and gaining on most crosses as EUR driven concerns drive most majors lower. CAD movement has been less volatile than most of its peers, a trend that is set to continue for now. USD/CAD remains near the upper end of its recent range, near 1.0200, as equity futures are pointing to a negative open while oil prices remain flat. Technical indicators suggest near term upward movement in USD/CAD. Resistance has been seen above 1.0220, and a break above these levels could see USD/CAD make a run for 1.0300.
MXN -The Mexican peso firmed sharply, bouncing back from losses of nearly 4% last week, as confidence returned to some consumers and trade volumes rebounded from the steepest peso sell-off since November 2008., Investors are however uncertain about the sustainability of recent gains by LatAm markets as unsettling news about Europe's debt crisis takes centerstage, yet again. Domestically, Mexican consumer confidence unexpectedly rose in October to 92.6 points vs. the forecasted fall to 90.3 points. Despite renewed household sentiment and rebound in recent trades, the outlook for sustained peso gains this week does not appear promising.
AUD - The AUD/USD bottomed at 1.0275 during the European morning but later managed to rise above 1.0300. The upward swing was supported by a recovery of stocks as Aussie trimmed losses and broke above 1.0330 in the waning minutes of the Asian session. Wheat exports from Australia are expected to climb 15% as the nation's third-largest harvest on record comes to pass this season. Despite this, technical momentum appears to be trending lower, and if the AUD holds below the Oct 18th low of 1.0188, expect 1.000 to be back on the near-term horizon.