USD – The dollar begins the week on a strong footing against most of its major counterparts as global equities and commodities slip into the red. Markets are closed in the US this morning with Hurricane Sandy bearing down on the East
Coast, leaving the market susceptible to volatile swings with liquidity unusually thin. Market participants not affected by the shut down on Wall St. were met with consumer data this morning that showed increases in both personal spending and income last month. However, the larger advance in spending suggests that consumers dipped into their savings to make big‐ticket purchases, as the cost to finance many items fell to near zero. While Sandy may keep markets shut through Wednesday, the dollar will likely remain rangebound ahead of key labor reports in the second half of the week. In the interim, investors will take note of consumer confidence on Tuesday and Chicago PMI on Wednesday. Thursday sees the release of ADP employment, weekly claims, ISM manufacturing, and construction spending. The week closes out with the all
important nonfarm payrolls and unemployment reports as well as factory orders all due on Friday. The dollar will thus likely remain rangebound ahead of the data, but with an uptick in volatility to be expected.
EUR – The euro approached a three‐week low overnight as Spanish and Italian policymakers met amid a wave of disappointing data throughout the region. In light of last week’s negative PMI data in not only the periphery nations, but also the region’s core economies, investors fear that a region‐wide recession is unavoidable at this point. Further reaffirming the fears, data this morning showed Spanish retail sales falling by 11% in September from a year ago as one in four Spaniards are out of work. Consequently, the common currency has consolidated below its 25‐day MA after breaking below the key support level last Friday for the first time since the middle of August. The 200‐day MA looks to be investors’ next target level, currently in the high 1.28’s. The negative outlook for the common currency was further reinforced this morning after German FM Schauble rejected a restructuring of Greece’s various “bailout” programs. While lax monetary policy elsewhere amongst the G10 nations will continue to provide a modicum of support for the common currency, it will struggle to post any lasting gains on its own.
GBP – The pound is struggling to maintain its gains from late last week this morning as BoE policymakers cautioned against over‐optimism after last week’s strong reading of British GDP. Deputy Governor Charles Bean told reporters to “avoid getting over excited. It’s quite possible that we see weak growth in the next quarter.” The comments come as investors await the BoE’s next meeting on November 8th with the Bank’s current QE program set to expire this month. In light of the recent uptick in economic activity, investors had begun to suspect a more hawkish tone from the BoE. As such, investors will be paying close attention to all official commentary in the lead up to next week’s decision.
JPY – The yen consolidated at its new stronger levels after last Friday’s appreciation. Nevertheless, the yen remains weaker on the year, having fallen 5.5% against its G10 counterparts. While policymakers have worked hard to weaken the yen this year as a relative strong yen hurts Japanese exports, much of the yen’s weakness can be attribute to record foreign M&A activity in 2012. Companies from Softbank to Marubeni have sold more than $100B worth of JPY so far this year as they purchase companies from Swiss drug makers to US phone companies. Nevertheless, the yen will likely remain range‐bound in the run‐up to tomorrow’s BoJ meeting, at which the Bank is expected to announce a further ¥10T addition to its asset purchase program.
Commodity Currencies – Last week offered little action in the commodities sphere: risk sentiment generally soured with equities selling off in the US and Europe alike. Oil products and metals are generally down on the week. CAD dropped below parity with the Greenback for the first time since August, having lost 0.2% since Friday’s close. and now down 3.8% since its September high, but still having gained over 2% on a YTD basis. Since September 13th CAD has been the weakest of the primary currencies primarily due to weakened demand for its commodity exports. Mexico’s peso fell, slipping the most among major currencies, as Hurricane Sandy moved toward the US East Coast, bearing down on a stretch of the Latin America’s biggest export market. The peso’s 1.6% slump in the past month has trimmed its YTD advance to 6.7%. Falling from the opening levels of around 1.0360, the Aussie dollar reached a late intraday low of 1.0316, weighed down by equity markets which finished flat. On the outlook this week, given a relatively quiet economic calendar, it’s unlikely the mediumterm range of 1.02‐ 1.04 will be broken ahead of the RBA’s interest rate announcement tomorrow, where investors remain unsure whether a rate cut will be forthcoming.
RMB –The Chinese yuan firmed and is looking to trade in narrow ranges ahead of China’s PMI data this week which is expected to surpass 50. Meanwhile, the recent rise in HSBC’s flash China PMI to 49.1 in Oct, from its recent low of 47.6 in Aug, has increased investor optimism and expectation for a firmer yuan. The likelihood of further easing has faded before
the change in regime coming in early November and as the outlook for better economic data is expected for October.
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