- Lower, FOMC signals rates will remain low for an extended period, jobless claims drop sharply
- Higher, Japan's export sales improve, Sakakibara says JPY may fall to 85.00
- Higher, ECB may announce details of exit strategy at the December policy meeting
- Higher, Q3 GDP revised up slightly
- AUD & CAD higher, RBA rate hike speculation, Russia to add CAD to its reserves
Overview
The USD traded sharply lower Wednesday dropping to a 15 month low pressured by a number of factors. The main catalyst for today's USD decline was confirmation in Tuesday's release of the FOMC minutes for the November policy meeting that the Fed plans to maintain a low level of interest rates for an extended period. The FOMC minutes also stated that the Fed sees the USD depreciation as "orderly." This statement is seen by some as a green light to sell the USD as the Fed indicates that it has no plans to support the USD. The JPY surged in reaction to report of improving Japanese export sales and trade balance and in reaction to news that China may allow some fine tuning of the Yuan rate. JPY was also supported by a statement from a former MOF official that the USD may fall to 8500 before Japanese officials consider intervention. European currencies were supported by the Fed rate outlook and improving risk appetite as equity markets firm with the EUR supported by a statement from an ECB official that the ECB will announce the details of its exit strategy at December 3rd policy meeting. GBP traded higher but gains were limited by the release of revised UK Q3 GDP which confirms that the UK economy is still in recession. Commodity currencies were supported by a surge to a new record high in the price of gold with the CAD supported by report that Russia plans to add CAD to its reserves and AUD supported by revived RBA rate hike speculation. Russian officials also said they may be considering adding other currencies to their reserves. The Russian reserve statement may generate additional concern about USD reserve currency status. US economic data was mixed with jobless claims posting a sharp drop, personal spending rising more than expected, and durable goods came in weaker than expected. New home sales rose by 6.2% and Michigan consumer sentiment came in slightly above expectation.
Today's US data:
Initial jobless claims for week ending 11/21 dropped 35k to 466K, a reading of 501K was expected. Jobless claims are their lowest since September 13, 2008. October personal income rose 0.2% and consumption rose 0.7%. October durable goods declined by 0.6% and 1.3% ex. transportation. October new home sales rose to 430k, a reading of 410K was expected. Final Michigan consumer sentiment for November dropped was revised up to 67.4, a reading of 66 was expected.
Upcoming US data:
No major US economic data is due for the remainder of the week with US markets closed Thursday for Thanksgiving Day holiday.
JPY
JPY traded sharply higher supported by Tuesday's release of the FOMC minutes for the November policy meeting which indicated that the Fed appears to have endorsed the "orderly" decline in the USD, and in reaction to a statement from former MOF official Sakakibara that be MOF would not be concerned about the strength of the JPY as long as USD/JPY remains above 8500. Japan's Finance Minister Fujii says that JPY rise reflects weak USD not JPY strength. His comment reduces the risk of intervention. JPY was also supported by report of improving Japanese trade surplus with export sales falling less than expected in October. Japan's October surplus widened to 807.1bln, a surplus of 452.2bln was expected. October export sales fell by 23.2%%. The trade had expected a drop of 26.5% export sales. The improvement in Japan's export sales reflects strengthening of the global economy and suggests that stronger JPY is not greatly impacting Japan's export sales. Report that Russia plans to add CAD to its reserves sparked additional selling of the USD as the news generates concern about the outlook for USD reserve currency status. Todays break of USD/JPY key near-term support at 88.00 points to a broader technical rally for the JPY.
On November 27th, October CPI will be released expected at -0.4% compared to flat last month. On November 27th October household spending will be released expected at -0.5% compared to 0.1% along with October unemployment expected unchanged at 5.3% and October retail sales expected at -0.7% compared to 0.9% last month.
Key technical levels to watch in USD/JPY include support at 86.10 with resistance at 88.64 the November 25th high.
EUR
EUR traded sharply higher breaking above 1.5000 supported the Fed's pledge to maintain low yields for an extended period and in reaction to a statement from the ECB's Provopoulos that the ECB will announce the details of an exit strategy at December 3rd policy meeting. Bloomberg reports that the ECB may be considering putting an adjustable rate on its 12 month loans. This would be a signal that the ECB is tightening the liquidity conditions. The fact that the Fed has signaled it will maintain monetary stimulus and the ECB is beginning its exit strategy from monetary stimulus supports the EUR as Fed and ECB policy diverge. Speculation that the Fed has endorsed the orderly decline in the USD adds to today's EUR rally. The FOMC minutes indicate that the Feds sees USD depreciation as orderly. Investors infer from the Fed statement about orderly depreciation of the USD that the Fed is condoning the USD decline. EUR was also supported by a record rise in the price of gold and report that Russia plans to diversify some of its reserves to the CAD and possibly other currencies. There was little reaction to report that December GFK Index dipped to 3.7 from 4 last month. This week's EU economic data also supports the EUR with manufacturing and services PMI, German IFO and industrial orders posting gains. These reports confirm that the EU economy is recovering and may encourage the ECB to move up the timeframe of its exit strategy. EUR paired some of its early gains pressured by a Reuter's report which says the IMF may tell European officials that they see the EUR as overvalued.
On November 26th,EU October M3 will be released expected 2% compared to 1.8% last month along with German November CPI expected unchanged at 0.1%.
The technical outlook for the EUR is positive as the EUR trades above 1.5000. Expect EUR support at 1.4888 the November 24th low with resistance at 1.5200.
GBP
GBP traded higher supported by improving risk appetite ,higher global equity markets record high in gold and in reaction to the Feds confirmation that interest rates will remain low for an extended period. The FOMC statement also said that the Fed expects gradual recovery and unemployment will remain elevated. GBP gains were limited by the release of revised UK Q3 GDP. The UK Q3 GDP was revised up 0.1% to -0.3%. Despite the upward revision in Q3 GDP the GDP report confirms that the UK economy is still in recession. GBP has underperformed primarily because of concern about the outlook for the UK recovery and speculation that uncertainty about the strength of the UK recovery will leave the BOE with little choice but to continue to expand its quantitative ease. Tuesday BOE Governor King said that the UK faces profound challenges. His comments may encourage speculation that the BOE has no choice but to expand its asset purchase plan. The OECD says that the BOE should hold rates at record low level until 2011 to ensure a sustainable recovery. The BOE expects the UK recession to end in Q4 and expects growth of 2.2% in 2010.
On November 26th November CBI distributive trade will be released expected at 5% compared to 8% last month.
The technical outlook for GBP is mixed as GBP struggles to hold above 1.6700. Expect near-term support at 1.6590 with resistance at 1.6845 for November 18th high.
CAD
CAD traded sharply higher supported by a record rise in the price of gold, firmer equity market trade and in reaction to report that Russia plans to add CAD to its reserves. The rally in gold supports CAD primarily because of the fact that Canada is a large exporter of commodities and metals. The gold rally may also be an indication that investors are to looking for ways to hedge against their concern about the outlook for weaker USD. The Russian announcement to diversify some reserves to the CAD fits with the scenario of nations looking for a hedge against the potential continued drop of USD. The Russian diversification news may also generate concern about the sustainability of the USD's global reserve currency. There were no major Canadian economic reports released in today's trade and US economic data confirms what the FOMC said yesterday that US recovery will likely be gradual. Today's rally in the CAD may increase the risk of intervention. Recent comments from BOC officials indicate that they are concerned that the strength of the CAD could cause further setbacks in the Canadian recovery. CAD direction remains closely correlated to the price of commodities and risk sentiment.
On November 27th Q3 current account will be released expected at 9.2bln compared to 11.2bln last month.
The technical outlook for CAD is positive as USD/CAD trades below 1.0600. Look for near-term support at 1.0415 the November 12th low with resistance at 1.0735 the November 20th high.
AUD
AUD traded higher supported by record rise in the price of gold and RBA rate hike speculation. Gold rallied to a new record high supported by demand from India and brought USD weakness. RBA Deputy Governor Battellino said that he expects the economic rebound to last for a few more years. His comments were seen as hawkish and an indication that the RBA would not hesitate in hiking interest rates at the RBA policy meeting on December 1st. AUD rally had been slowing partly due to uncertainty about RBA policy outlook but consensus appears to be swinging in favor of a 25bps rate hike at the December policy meeting. RBA current overnight interest rate is 3.5%. In light of the Fed's commitment to maintain low yields for an extended period the AUD would likely benefit from and widening of US and Australian yield differential. A number of analysts are looking for the AUD trade to parity versus the USD at some point during 2010. AUD gains were limited by selling to the AUD/JPY cross. As noted above, the JPY benefits from report of improving Japanese export sales. In addition, there is still a great deal of uncertainty about global economic outlook in 2010. The direction of equity markets and commodities remain key to the AUD. Focus turns to Thursday's release of Australia's CAPEX spending.
On November 26th Q2 Capex will be released expected at 4% compared to 3.3% last month.
The technical outlook for the AUD is positive as the AUD rallies above 9300. Expect AUD support at 9211 the November 25th low with resistance at 9378 the November 17th high.
|
