US Morning Notes - USD higher, IMF warns of sluggish global growth

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FX Highlights

• The USD is trading higher Tuesday supported by a dip in risk appetite as the global equity market rally stalls in reaction to a statement from the IMF that the global economic recovery may be sluggish ,ECB President Trichet calls on US to confirm strong USD policy, GBP supported by report of higher than expected UK consumer inflation, AUD pressured by the release of RBA minutes which indicate that the RBA may pass on the December rate hike, crude and the price of gold trade lower as the USD recovers and investors liquidate some risk positions, risk appetite falls with weaker equity markets
• Focus turns to today’s release of US PPI, industrial production, capacity use and NAHB index
• Japans September METI tertiary index falls 0.5%, Japanese officials expressed concern about deflation and suggest additional stimulus may be needed to boost growth, JPY lower
• RBA minutes state that pace of rate hikes open to question, further gradual rate rises likely, AUD rally may constrain growth and inflation, AUD lower
• EU September trade surplus widens to 3.7bln from 2.3bln deficit last month, EUR lower
• UK October CPI rises 0.2% m/m and 1.5% y/y, GBP mixed
• Swiss September retail sales fall 1.6% compared to 1% decline last month, SNB’s Roth says it will take time for Swiss economy to emerge from recession and he sees price stability in Switzerland in the coming years, CHF lower
• Fed Chairman Bernanke says that rising unemployment and tight lending conditions makes it possible for future setbacks in the US economy, he pledged to keep interest rates low and sees moderate recovery in 2010, Bernanke also said that Fed policy would help ensure that the USD is strong and a source of global financial stability
• Fed Fisher says US Q3 GDP was probably closer to 2.5% than the original report of 3.5%
• The head of the IMF says that a basket of currencies may eventually replace the USD
• US equity markets set to open lower, European equities 0.5% lower, Nikkei closed 61 points lower

Upcoming Events

• US - Tuesday, October PPI will be released expected at 0.1% compared to -0.1% last month along with October capacity use expected at 70.8 compared to 70.5 last month, October industrial production expected at 0.4% compared to 0.7% last month and November NAHB expected at 19 compared to 18 last month
• CAN - Tuesday, no major reports are due for release today

EU Morning Report – Bernanke’s rare comments support USD, market awaiting action

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Bernanke’s rare comments support the USD, market awaiting action

• On behalf of the Fed, Bernanke said they are monitoring currency markets “closely and will conduct policy in a way that will “help ensure that the dollar is strong”, on Monday.  In the meantime, the Fed still expects to keep rates near zero for an “extended period” based on its forecasts of “low levels of resource utilization, subdued inflation trends and stable inflation expectations.”
• The Chairman’s remarks boosted the greenback, but it was not long before the dollar reversed gains as traders questioned whether Bernanke was prepared to go beyond talking in support of the currency.
• In Asia, stocks and commodities decline from a three week high as Bernanke forecasted “significant” challenges ahead in the revival of the U.S. economy, saying it will be restrained by the “headwinds” of reduced bank lending and a weak labor market.
• US Retail Sales beating market expectation and the 21-member APEC’s pledge to continue their efforts in reviving the global economy helped push Gold prices to new record high at 44.20 and Crude oil to an intraday-high of .43 a barrel.

Currency to watch out for: EURUSD & GBPUSD

• The EURUSD pivot point is at 1.5000 with a preference to enter into short positions below 1.5000
• The GBPUSD pivot point is at 1.6875 with a preference to enter into short positions at 1.6865

Today’s calendar and market movers:

• UK CPI month on month expected to rise to 0.1%
• US PPI month on month expected to rise to 0.5%
• US Industrial Output month on month expected to drop to 0.4%

Stocks:

• U.S. equities finished higher on Monday after investor sentiment rose following APEC’s commitment to maintain stimulus spending and encouraging U.S. Retail Sales.  At the closing bell, the Dow closed up 1.33%, the S&P up 1.45% and the NASDAQ up 1.06%.
•  As of 07:00 GMT the Nikkei is trading at -0.63% and the Hang Seng at -0.56%

Weekly Outlook - Fresh Risk Appetite hurts USD

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Last week’s currency trading review

The Dollar continued to lose ground as US stocks markets soared to year highs and Gold traded to fresh all time highs. Economic data was light but multiple FED speakers all re-emphasized that US rates will remain low for some time. Weekly Jobless Claims improved to 502k vs. 512k forecast. Trade Balance -36.5bn vs. -31.8bn forecast. UoM consumer Sentiment fell to 66 vs. 71.1 previously. The Euro was volatile but ended higher as stocks helped to lift whilst weak Oil contained gains. Solid resistance above 1.5000 is proving hard to break for the time being. German ZEW Economic Sentiment slumped to 51.1 vs. 55.2 forecast and 56 previously. Preliminary EU Q3 GDP was weaker than expected at 0.4% vs. 0.6% forecast. The EUR/USD gained 0.41% closing at 1.4906, after opening the week at 1.4845.

The Japanese Yen once again kept to tight ranges against the USD but weakened across most other pairs as improving risk appetite caused high yielding pairs such as the AUD/JPY to be bought. September Core Machinery Orders improved 10.5% vs. 3.4% forecast. The USD/JPY fell -0.25% closing at 89.66 after opening the week at 90.88. The GBP continued to shrug off the best efforts of the BoE to keep the Pound under pressure. BoE Governor King in the Inflation report once again talked of the weak GBP helping the UK economy to recover via exports. Claimant Count Change was strong at 12.9k vs. 20.2k forecast. GBP/USD gained 0.42% closing at 1.6681 after opening at 1.6611. The AUD gained heavily on the back of gold and US stocks rallying but was also aided by strong economic data. October Employment improved by +24.5k vs. -10.1k forecast and September Home loans improved by 5% vs. 3% forecast. The AUD/USD gained 1.52% at 0.9328 after opening at 0.9186.

The forex trading week preview

In the States; On Tuesday, October Industrial Production is forecast at 0.4% vs. 0.7% previously. Also released, Oct PPI forecast at -1.7% vs. -4.8% y/y. On Wednesday, October CPI is forecast at 0.3% vs. -0.9% previously. Also released, October Building Permits are forecast at 580k vs. 573k previously. On Thursday, Weekly Jobless Claims are forecast at 504K vs. 502k previously. On Friday, Philly Fed is forecast at 12 vs. 11.5 previously. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone; On Tuesday, ECB President Trichet Speaks. On Wednesday, EU September Current account is released previously at -1.3bn. On Friday, October German PPI is forecast at -7.5% vs. -7.6% previously. In the UK; On Tuesday, October CPI is forecast at 1.4% vs. 1.1% previously y/y. On Wednesday, BoE minutes are forecast to show 9-0 vote. On Thursday, October Retail Sales are forecast at 2.9% vs. 2.4% previously y/y. We will provide our previews and reviews of these data releases in the daily summary.

In Japan; On Friday, BOJ meet to discuss rates and are expected to hold at 0.1%. In Australia; On Tuesday, RBA minutes. On Wednesday, Q3 Wage Cost index forecast at 0.7% vs. 0.8% previously Q/Q. We will provide our previews and reviews of these data releases in the daily summary.

TECHNICAL COMMENTARY

Euro - 1.4930

Initial support at 1.4822 (Nov 12 low) followed by 1.4786 (0.618 OF 1.4624-1.5049). Initial resistance is now located at 1.5048 (Nov 11 high) followed by 1.5063 (Oct 26 high)

Yen - 89.60

Initial support is located at 89.46 (Nov 13 low) followed by 89.20 (Nov 2 low). Initial resistance is now at 90.60 (Nov 12 high) followed by 91.32 (Oct 29 high).

Pound - 1.6710

Initial support at 1.6516 (Nov 12 low) followed by 1.6402 (Nov 4 low). Initial resistance is now at 1.6843 (Nov 9 high) followed by 1.7043 (Aug 5 high).

Australian Dollar - 0.9340

Initial support at 0.9211 (Nov 12 low) followed by the 0.9196 (Nov 9 low). Initial resistance is now at 0.9370 (Nov 12 High) followed by 0.9476 (Jul 31 ‘ 08 high).

Gold - 1125

Initial support at 1095 (Nov 9 low) followed by 1087 (Nov 6 high). Initial resistance is now at 1129 (1026.60 plus 0.618 of 905.10-1070.80) followed by 1136 (1.618 retrace 930.34 - 1024.28 through 985).

Oil - 76.80

Initial support at 75.00 (Key level) followed by 74 (Intraday support). Initial resistance is now at 78 (Intraday resistance) followed by 80 (Key Level).

Daily Forex Outlook - Bernanke Comments on Dollar

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CURRENCY TRADING SUMMARY - 17th November (00:30GMT)

U.S. Dollar Trading (USD) was on the back foot for most of the day as Global equities remained buoyant in the wake of the APEC meeting confirming stimulus and declining to comment on the USD. Fed Chief Bernanke did however support the dollar and for a short period in the US session the USD surged off fresh year lows as the market digested his comments. Doubts about the conviction of the FED to support the dollar though saw these gains pared back into the close with stock markets finishing at fresh Year highs. US retail Sales were strong at 1.4% in October vs. 0.9% forecast. In US Stocks, DJIA +136 points closing at 10406, S&P +15 points closing at 1109 and NASDAQ +29 points closing at 2197. Looking ahead, US October PPI is forecast at 0.6% vs. -0.6% previously.

The Euro (EUR) had a wild trading day gaining heavily with stocks and oils but was pummeled lower on Bernanke’s pro USD comments before reversing these losses to make fresh highs above 1.5000. October EU CPI was at 0.3% as forecast. EUR/JPY struggled to track the improved risk appetite as USD/JPY dived to month lows. Overall the EUR/USD traded with a low of 1.4879 and a high of 1.5018 before closing at 1.4975. looking ahead, September EU Trade Balance forecast at -0.9Bn vs. 1.0Bn previously.

The Japanese Yen (JPY) was broadly strong as the USD/JPY melted on Dollar concerns below the 89 Yen level. Most crosses struggled to hold gains with even the risk trade AUD/JPY struggling to maintain gains whilst stocks were at year highs and gold continued to surge. Japan Q3 GDP at 1.2% vs. 0.7% forecast. Overall the USDJPY traded with a low of 88.73 and a high of 89.73 before closing the day around 89.10 in the New York session.

The Sterling (GBP) was very solid rallying up to fresh month highs above 1.6800 on continued cross recovery and generally strong risk appetite. EUR/GBP broke below 0.8900 support and GBP/JPY continued to test the 150 Yen level. Overall the GBP/USD traded with a low of 1.6667 and a high of 1.6881 before closing the day at 1.6830 in the New York session. Looking ahead, October CPI is forecast at 1.4% vs. 1.1% previously.

The Australian Dollar (AUD) broke above 0.9400 for fresh year highs as risk appetite and the weak USD pushed the commodity currency higher. Adding to the rally was Oil and golds large moves higher with the only risk stemming from the speed of the recent AUD rise and the technically overbought conditions this brings. Overall the AUD/USD traded with a low of 0.9315 and a high of 0.9408 before closing the US session at 0.9375. Looking ahead, RBA Minutes released from November’s meeting are important for clues of December potential rate rise.

Oil & Gold (XAU) rallied with little reprieve all day. Overall trading with a low of USD22 and high of USD44 before ending the New York session at USD38 an ounce. Played catch up with commodities and general risk appetite. Crude Oil was up .55 ending the New York session at .90.

TECHNICAL COMMENTARY

Euro - 1.4975
Initial support at 1.4822 (Nov 12 low) followed by 1.4786 (0.618 of 1.4624-1.5049). Initial resistance is now located at 1.5048 (Nov 11 high) followed by 1.5063 (Oct 26 high)

Yen - 89.10
Initial support is located at 88.73 (Nov 16 low) followed by 88.00 (Big Figure). Initial resistance is now at 90.60 (Nov 12 high) followed by 91.32 (Oct 29 high).

Pound - 1.6825
Initial support at 1.6572 (Nov 13 low) followed by 1.6519 (Nov 12 low). Initial resistance is now at 1.6843 (Nov 9 high) followed by 1.7043 (Aug 5 high).

Australian Dollar - 0.9375
Initial support at 0.9211 (Nov 12 low) followed by the 0.9196 (Nov 9 low). Initial resistance is now at 0.9476 (Jul 31 ‘ 08 high) followed by 0.9637 (Jul 24 ‘08 high).

Gold - 1138
Initial support at 1101 (Nov 13 low) followed by 1095 (Nov 9 high). Initial resistance is now at 1144 (Nov 16 high) followed by 1150 (Big Level).

Oil - 78.90
Initial support at 78.00 (Intraday support) followed by 76 (Intraday support). Initial resistance is now at 80 (key level) followed by 82 (October high).

Special FX Report - EU emerges from recession, ECB exit next?

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The EU reported that Q3 GDP rose 0.4%. A 0.5% rise was expected by the consensus of economists. The GDP rise confirms that EU is slowly emerging from recession. As the EU economy emerges from recession the ECB is expected to begin its plans for an exit strategy from monetary stimulus. Monday, the ECB’s Weber said that the EU must begin preparations for an exit from extraordinary fiscal and monetary measures. The withdrawal of stimulus will be gradual because of uncertainty as to whether the EU recovery sustainable. A breakdown of Q3 GDP shows that most of the improvement was due to an increase in exports. If the EUR continues to rally and the global recovery slows the EU export led recovery may be at risk. The EUR continued to rally in Monday’s trade. EUR was supported by China’s rejection of calls for Yuan revaluation and a surge to new high for 2009 in US equities as APEC joins the Fed and G-20 pledge to maintain fiscal and monetary stimulus.

Sunday, China rejected the US and international call for Yuan revaluation. The fact that China is not ready to allow the Yuan to strengthen may mean global rebalancing will increase selling pressure for the USD and upward pressure on the EUR. Last week the Fed reaffirmed its commitment to maintaining low yields, the G-20 said it will continue to support monetary and fiscal stimulus and over the weekend APEC said it would maintain its commitment to fiscal and monetary stimulus until the global recovery is secured. Global growth and the recovery are highly dependent upon monetary and fiscal stimulus. As long as these policies continue the USD remains vulnerable and the EUR should remain firm. Continuing EUR strength may choke off the EU export led recovery.

Strong EUR is not only a treat to EU exports but contributes to weaker EU inflation. EUR inflation declined for the 5th month in a row in October falling 0.1% y/y. EU inflation is expected to turn positive in the coming months but remain a below target through 2011. ECB mandate is price stability. ECB President Trichet said that unconventional policy measures that do not threaten price stability will be allowed to continue. This means that the ECB may elect to continue 3 and six month auction until the addition of liquidity boosts inflation. An additional risk to the sustainability of the EU recovery is rising EU unemployment. EU September unemployment rose to it highest since January of 1999 at 9.7%. Rising unemployment will limit the recovery in consumer demand and may encourage the ECB to continue with it covered bond purchases into Q1 2010.

The next ECB policy meeting will be held in early December. We expect the ECB to lay out the details of its exit plan at the December policy meeting. The ECB will likely let its emergency liquidity measures expire naturally and maintain steady monetary policy.  Because of uncertainty about the sustainability of the EU recovery, continued high unemployment and falling inflation the ECB is unlikely to be in any hurry to hike interest rates and tighten monetary policy. The ECB’s monthly bulletin says that ECB expects EU GDP to grow by 1% 2010. This GDP growth forecast may be at risk if the ECB begins withdrawing stimulus too soon. The ECB’s exit from emergency liquidity measures will be a separate decision from timing of the ECB’s decision to hike interest rates. An ECB rate hike is not expected until mid 2010 at the earliest. The exit from fiscal stimulus will take longer. The EU commission calls on Europe to ready its fiscal exit strategy before 2011.Note in the graph below that despite improvement in EU Q3 GDP EU annual GDP declined by 4.1%. The ECB must be careful to not remove stimulus too quickly and put the fragile EU recovery at risk. The ECB exit plan is coming next but a quick exit by the ECB is unlikely.

Daily Forex Report - USD lower, retail sales rise more than expected

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• USD: Lower, Empire Manufacturing falls, retail sales rise, business inventories fall less than expected
• JPY: Higher, GDP rises at the fastest past in more than two years
• EUR: Higher, EU CPI falls by 0.1% y/y, China not ready to let Yuan rise
• CHF: Higher, tracking risk sentiment, import prices and investor sentiment decline
• GBP: Higher, Rightmove house prices fall 1.6%
• CAD and AUD: AUD & CAD higher, gold trades at record high, Canada’s manufacturing shipments rise

Overview     
USD starts the week lower pressured by improving risk appetite as global equity markets rally, crude prices trade higher and gold trades at a new record high. The equity market rally and the rally in crude and gold are attributed to the APEC pledge to keep expansionary fiscal and monetary stimulus policies until the global recovery is durable. USD was also pressured by report of stronger than expected Q3 GDP from Japan, lack of agreement at the APEC meeting over Yuan revaluation and hawkish comments from ECB’s Weber. Japan’s Q3 GDP rose at its fastest level in two years. US and Chinese officials failed to agree on the need for Yuan and the APEC communiqué made no reference to FX levels. ECB’s Weber says that the EU must start plans to withdraw fiscal and monetary stimulus. GBP underperformed pressured by report of drop in November house prices. Commodity currencies traded higher tracking firm commodity prices and improving risk appetite as equity markets rally. US economic data was mixed with Empire Manufacturing Index coming in much weaker than expected and retail sales rising more than expected. The retail sales rise however was fueled primarily by auto sales and the impact of the cash for clunkers program which is now expired. Business inventories posted a smaller decline than expected. USD sentiment remains negative on optimism about the global recovery.

Today’s US data:

November Empire State Manufacturing Index falls to 23.51, a reading of 31 was expected. October retail sales rose 1.4%, a reading of was expected 0.4%. Retail sales rose just 0.2% ex-autos. October business inventories fell by 0.4%, a 0.6% decline was expected.

Upcoming US data:
On November 17th October PPI will be released expected to rise by 0.4% compared to -0.6% last month. October industrial production, capacity utilization and the November NAHB index will also be released on November 17th. Industrial production is expected to rise by 0.4% compared to 0.7% last month, capacity utilization is expected at 70.8 compared to 70.5 last month and the NAHB index is expected 19 compared 18 in October. On November 18th October CPI will be released expected unchanged at 0.2% along with October housing starts and building permits. The housing starts are expected to rise to 600k from 590k last month and building permits are expected at 580k compared to 573k last month. On November 19th initial jobless claims for week ending the 11/14 will be released expected at 497k Compared to 502K last month. October leading indicators and November Philly Fed will also be released on November 19th. Leading indicators are expected to rise by 0.4% compared to 1% last month and the Philly Fed is expected at 12.5 compared to 1.5 last month.

JPY
JPY traded higher supported by report of stronger than expected Q3 GDP and report that CAPEX spending rose for the first time since Q1 of 2008. Japan’s Q3 GDP rose 1.2% and CAPEX rose 1.6%. The Q3 GDP was expected to rise by 0.7%. Japanese officials downplayed the Q3 GDP report indicating that economic conditions are picking up but downside risks remain for the economy and signs of deflation continue. JPY gains were limited by report that the US and China failed to agree on Yuan revaluation. JPY traded higher in Friday’s trade supported by report of the sharp upward revision in Japan’s industrial production and Yuan revaluation rumors. JPY gains were also limited by mixed price action in cross trade with EUR/JPY supported by the failure of the US and China to agree on exchange rates at the APEC meeting Sunday. The failure to agree on Yuan revaluation means that rebalancing of global trade will require a further decline in the USD versus the majors as China elects to keep the Yuan rate stable.

On November 17th September tertiary activity will be released expected at 0.4% compared to 0.3% last month. On November 18th revised September leading indicators will be released expected at 0.8% compared to 2% last month. On November 19th September all industry activity will be released expected at 0.6%.

Key technical levels to watch in USD/JPY include support at 88.83 the October 14th low with resistance at 90.86 the November 6th high.

EUR
EUR traded higher supported by report that the APEC communiqué left out reference to FX rates and in reaction to hawkish statements from ECB’s Weber. The fact that APEC communiqué did not address USD weakness was seen as a green light to sell the USD because it reduces risk of coordinated support for the USD. In addition, the failure of the US and China to agree on Yuan valuation means that rebalancing of global trade may continue to force the USD lower against the majors. The ECB’s Weber says that the EU must start to make plans for the withdrawal of fiscal and monetary stimulus. The EU reported Friday that Q3 GDP rose by 0.4% confirming that the EU economy is emerging from recession. The EU Q3 GDP report may encourage speculation that the ECB will begin to remove stimulus and consider a timeframe for hiking interest rates. Recent statements from ECB officials indicate that the ECB will begin to allow emergency support programs to expire. ECB officials have given no indication that they are in any hurry to raise interest rates. The withdrawal of stimulus and tightening of monetary policy are seen as two separate considerations for the ECB. EUR gains were limited by report of weak inflation. EU October inflation rose 0.2% and fell by 0.1% y/y. EU consumer prices fell for the fifth month in row. The lack of inflationary pressures in the EU should encourage the ECB to maintain steady monetary policy.

On November 17th EU September foreign trade balance will be released expected at -2bln compared to -4bln last month. On November 18th EU September current account will be released expected at -4.8bln and compared to -5bln Last month.

The technical outlook for the EUR is mixed as the EUR fails to trade back above 1.5000. Expect EUR support at 1.4810 the November 5th low with resistance at 1.5017 the November 12th high.

CHF
CHF edged higher Monday supported by improving risk sentiment as equity markets rally and APEC pledges to maintain fiscal and monetary stimulus until the global recovery is secured. Last week, SNB’s Jordan confirmed that the central bank will maintain steady monetary policy. Jordan noted that low interest rates were needed to support the economic recovery. He went on to express concern about strong CHF but said that recent efforts by the SNB to stabilize the CHF have been successful. Last week’s Swiss economic data was mixed with Zew investor confidence posting a decline to 56.4 from 65 in October and producer and import prices declined by 0.4%. This week’s Swiss economic calendar includes Tuesday’s release of September retail sales expected at 0.2% compared to -1% last month and the trade balance expected at 1.62bln compared to 1.92bln last month. Expect USD/CHF support at 1.0015 the July 15th 2008 low with resistance at 1.0300.

GBP
GBP traded mixed with gains limited by report of a decline in UK house prices. UK November house price index fell by 1.6%. The decline in UK house prices generates concern about the outlook for recovery in the UK economy and the report will likely encourage speculation that the BOE may consider expanding its asset purchase plan. On November 18th, the BOE will release the minutes from its November policy meeting. The BOE elected to expand its asset purchases by £25bln at the November policy meeting. The trade will look at the minutes for clues to whether the BOE is considering further expansion of its asset purchase plan. GBP has been underperforming since last Wednesday’s comments from BOE Governor King that a weak GBP will help to boost the UK economy and that he is open-minded about expanding of BOE’s asset purchases. King was clearly sending a signal that the BOE intends to maintain low yields for sometime to come and that they central bank is a long way from considering withdrawing stimulus. GBP generally weakens in reaction to news that the BOE is expanding or plans to expand its asset purchase plan. Focus turns to Tuesday’s release of UK CPI. The BOE November inflation report indicated that UK short-term inflationary pressures are likely to intensify but overall inflation will remain below the 2% target over the next few years.

This week’s UK economic calendar includes the November 17th release of October CPI expected at 0.2% compared to flat last month. On November 18th September CBI orders will be released expected at this -50 compared to -51 last month. On November 19th October money supply and public-sector borrowing will be released. The money supply is expected is to rise by 0.9% compared to 0.8% last month. Public-sector borrowing is expected to widen to 15.062bln from 14.812bln last month.  Also on November 19th, October retail sales will be released expected at 1% compared to 2.4% last month and 1.6850.

The technical outlook for GBP is positive as GBP trades above 1.6700. Expect near-term support at 1.6574 the November 13th low with resistance at 1.6799 for November 11th high.

CAD
CAD traded higher supported by rising crude prices and a rally to a new the record high in the price of gold. APEC pledge to maintain fiscal and monetary stimulus generates optimism about the global recovery and fuels demand for equities, commodities and commodity-based currencies. CAD was also supported by report of strong Canadian manufacturing shipments. September manufacturing shipments rose 1.4%. The rise in manufacturing shipments reflects a sharp jump in auto sales. Better than expected Q3 GDP data from Japan and strong US retail sales report adds to improving risk appetite and selling of the USD. Last week, Canada reported a sharp improvement in its trade deficit with exports rising despite strong CAD. The fact that Canada’s export sales are rising despite strong CAD may reduce the risk of intervention. It’s important to note that the improvement in Canada’s manufacturing shipments and export sales mainly reflects improvement in auto sales. This may be an indication that the recovery in manufacturing the trade balance will be temporary CAD price direction will continue to track the direction of commodities and equities.

On Wednesday November 18th October CPI will be released expected to rise 0.1% compared to flat last month. On November 19th September net foreign investment will be released expected at 3.06bln compared to 5.08bln last month along with October leading index expected at 0.7% compared to 1.1% last month and September wholesale sales expected at 1% compared to -1.4% last month.

The technical outlook for CAD is positive as USD/CAD trades below since 1.0600. Look for near-term support at 1.0375 the October 21st low with resistance at 1.0610 the November 10th high.

AUD
AUD traded higher supported by rising commodity prices and improving risk sentiment but today’s gains were unimpressive. AUD has been supported by optimism about global recovery and speculation that the RBA will hike rates in December. This speculation sparked an AUD rally to a new high for 2009 last week. Last week Australia reported an unexpected rise in new jobs created. Jobs growth rose by 24.5k in October. The better than expected jobs growth in Australia may intensify speculation that the RBA will hike rates in December. However Australia also reported last week that consumer confidence posted a decline and inflation fell by more than expected. These reports may temper speculation about RBA rate hikes. Focus turns to this week’s release of Australia’s labor price index. Stronger Australian labor costs would increase speculation that the RBA will hike rates in December. AUD price direction will continue to track the direction of equities and risk sentiment.

This week’s Australian economic calendar includes the November 18th release of Q3 labor price index expected unchanged at 0.8%.

The technical outlook for the AUD is positive as the AUD rallies above 9200. Expect AUD support at 9210 the November 12th low with resistance at 9420 the August 1st 2008 high.

US Morning Notes - USD lower, Japan’s Q3 GDP rises most in two years

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FX Highlights

• The USD starts the week lower as equity markets rally, crude prices trade higher and gold trades at new record high, strong GDP data from Japan and statements from China downplaying the possibility of Yuan revaluation sparked selling of the USD, ECB’s Weber calls for the start of plans to withdraw fiscal and monetary stimulus, GBP underperforms as house prices fall in November, commodity currencies supported by improving risk sentiment and rising commodity prices
• Focus turns to the US release of US Manufacturing index, retail sales and business inventories and Canada’s manufacturing shipments
• Officials from China downplay potential for Yuan revaluation, APEC communiqué makes no reference to FX rates, US and China fail to agree on Yuan revaluation
• Japan’s Q3 GDP rose 1.2%, CAPEX spending rose 1.6%, JPY higher
• UK November Rightmove house prices fall 1.6%m/m, and rose 1.6% y/y, GBP higher
• EU October inflation rose 0.2%, ECB’s Weber says that the EU must start preparations to withdraw fiscal and monetary stimulus, EUR higher
• Saudis plan to double oil production capacity by 2015 to meet demand from Asia
• WSJ reports that economists expect the Fed to begin raising rates in September
• Feds Evans says unemployment will continue to rise into mid year and accommodative policy may be needed beyond 2010
• US equity markets set to open higher, European equities1% higher, Nikkei closed 20 points higher

Upcoming Events

• US - Monday, November Empire State Manufacturing Index will be released expected at 31 compared to 34.57 last month along with October retail sales expected at 0.4% compared to 0.5% last month and September business inventories expected at -0.6% compared to-1.5% last month
• CAN - Monday, September manufacturing shipments will be released expected at -1% compared to -2.1% last month

EU Morning Report – Euro rallies as Asian stocks rose supported by APEC

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The euro rallies as Asian stocks rose after regional leaders pledge to maintain stimulus measures.

• The Asia-Pacific Economic Cooperation leaders said they would keep spending until there was “durable” growth as they agreed the economic recovery is not on a “solid footing” yet.  The greenback weakened against most of its major counterparts as the Dollar Index lost 0.4% to 75.02.  The EURUSD continues to rally from Friday’s low of 1.4824 to levels above 1.4970 as of 06:40 GMT.
• The 21-APEC members, representing 54% of the global economy, did not mention currency distortions, which U.S. companies say give China unfair trade advantages.  The U.S. dollar also weakened on speculation Federal Reserve officials will today reaffirm the central bank’s pledge to keep interest rates low to support growth.
• Japan’s GDP grew at an annual 4.8% pace in the third quarter, faster-than-anticipated, as the nation’s capital spending rose 1.6% in the three months through September, boosting risk appetite. 
• The declining greenback sent gold prices to yet another record high at 30 an ounce, as demand increased for the precious metal as a safe-haven.  Crude oil recovers to a barrel from a one-month low as stronger than expected Japan GDP growth spurs expectations for demand recovery.

Currency to watch out for: EURUSD & USDJPY

• The EURUSD pivot point is at 1.4900 with a preference to enter into long positions at 1.4910
• The USDJPY pivot point is at 89.90 with a preference to enter into short positions at 89.85

Today’s calendar and market movers:

• EU Core CPI year on year expected to remain unchanged at 1.1%
• US Core Retail Sales month on month expected to drop to 0.4%
• New York Fed Manufacturing expected to drop to 30.0
• US Fed Reserve Chairman Bernanke is due to speak about the economic outlook, in New York.

Stocks:

• US equities closed higher on Friday with the Dow up 0.7%, the S&P up 0.6% and the NASDAQ up 0.9%
• As of 07:00 GMT the Nikkei is trading at 0.21% and the Hang Seng at 1.38%

Daily Forex Outlook - USD Weakness Resumes

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CURRENCY TRADING SUMMARY - 16th November (00:30GMT)

U.S. Dollar Trading (USD) gave back most of the gains from Thursday as US stocks rebounded and Gold led the charge higher. US Trade deficit in September widened to -.5bn vs. -bn forecast. University of Michigan Consume Sentiment was also weaker at 66 vs. 70.6 previously. In US Stocks, DJIA +73 points closing at 10270, S&P +6 points closing at 1093 and NASDAQ +18 points closing at 2167. Looking ahead, September Business Inventories forecast at -0.6% vs. -1.5% previously.

The Euro (EUR) Found support and recovered through the day to finish above the 1.4900 figure. Risk was tentatively put back on throughout the day although EUR/JPY struggled as USD/JPY losses matched the EUR/USD gains. EU GDP was slightly less than forecast at 0.4% vs. 0.5% forecast. Overall the EUR/USD traded with a low of 1.4826 and a high of 1.4936 before closing at 1.4915. looking ahead, October EU inflation is forecast at 0.3% vs. 0.0% previously.

The Japanese Yen (JPY) strengthened against the USD and was well supported against most pairs with investors less keen to buy crosses into the weekend. The 90 Yen level has been the key figure in the market recently with buyers below and sellers above creating a very tight range. Overall the USDJPY traded with a low of 89.47 and a high of 90.41 before closing the day around 89.63 in the New York session. UPDATE Q3 GDP at 1.2% vs. 0.7% forecast.

The Sterling (GBP) rallied with the improvement in risk appetite after finding solid support inside the 1.65 figure on Thursday. The pair finished near 1.6700 with the EUR/GBP testing support at 0.8920 as the Pound recovery continued. Overall the GBP/USD traded with a low of 1.6572 and a high of 1.6705 before closing the day at 1.6690 in the New York session.

The Australian Dollar (AUD) rallied the most of the majors as gold recovered and the high yielding pair took advantage of strong sentiment towards the AUD after recent strong economic data. The pair is still strongly correlated with the stock markets but dips are finding solid support keeping the bias higher. Overall the AUD/USD traded with a low of 0.9225 and a high of 0.9343 before closing the US session at 0.9341.

Oil & Gold (XAU) opened under pressure but found support near 00 and recovered for the rest of the day. Overall trading with a low of USD02 and high of USD19 before ending the New York session at USD18 an ounce. Continued to slump as demand came into question. Crude Oil was down -{content}.59 ending the New York session at .35.

TECHNICAL COMMENTARY

Euro - 1.4930

Initial support at 1.4822 (Nov 12 low) followed by 1.4786 (0.618 OF 1.4624-1.5049). Initial resistance is now located at 1.5048 (Nov 11 high) followed by 1.5063 (Oct 26 high)

Yen - 89.60

Initial support is located at 89.46 (Nov 13 low) followed by 89.20 (Nov 2 low). Initial resistance is now at 90.60 (Nov 12 high) followed by 91.32 (Oct 29 high).

Pound - 1.6710

Initial support at 1.6516 (Nov 12 low) followed by 1.6402 (Nov 4 low). Initial resistance is now at 1.6843 (Nov 9 high) followed by 1.7043 (Aug 5 high).

Australian Dollar - 0.9340

Initial support at 0.9211 (Nov 12 low) followed by the 0.9196 (Nov 9 low). Initial resistance is now at 0.9370 (Nov 12 High) followed by 0.9476 (Jul 31 ‘ 08 high).

Gold - 1125

Initial support at 1095 (Nov 9 low) followed by 1087 (Nov 6 high). Initial resistance is now at 1129 (1026.60 plus 0.618 of 905.10-1070.80) followed by 1136 (1.618 retrace 930.34 - 1024.28 through 985).

Oil - 76.80

Initial support at 75.00 (Key level) followed by 74 (Intraday support). Initial resistance is now at 78 (Intraday resistance) followed by 80 (Key Level).

Daily Forex Report - USD lower, trade balance widens sharply on import surge

Posted by admin as Forex News

• USD: Lower, trade balance widens most in 10 years on higher imports, Michigan consumer confidence falls
• JPY: Higher, Yuan revaluation rumors, sharp upgrade of September industrial production
• EUR: Higher, EU economy emerges from recession in Q3, Q3 GDP rise was less than expected
• GBP: Higher, supported by merger rumors, gains limited by uncertainty about BOE asset purchase plan
• CAD and AUD: AUD & CAD higher, Canada’s trade balance improves, tracking stocks

Overview     
USD traded lower Friday with JPY supported by Yuan revaluation rumors, EUR supported by report that EU economy emerged from recession in Q3, GBP supported by merger rumors and the AUD supported by a statement from Australia’s trade minister that strong AUD is not limiting Australian export sales. CAD was supported by report of better than expected Canadian trade data and a surge in exports. US economic data was mixed with import prices higher than expected, and the trade deficit rising much more than expected. The rise in the trade deficit reflects a sharp increase in imports and a smaller rise in export sales. The rise in imports is further confirmation of improving outlook for the US domestic economy.  The widening of US trade balance may generate concern about global trade imbalance and increase pressure on G-20 nations to take action on rebalancing. Widening of the US trade balance is attributed to higher oil prices and demand for imports from China. A weaker USD and stronger Yuan will be needed to help foster rebalancing of global trade. Michigan consumer sentiment fell more than expected. USD price direction will likely continue to you track risk sentiment and equities with investors looking at upcoming data for clues to the shape of the global recovery. US equities rallied despite weaker Michigan consumer sentiment. Japan’s Q3 GDP and US Empire Manufacturing and retail sales on tap Monday.

Today’s US data:
October import prices rose by 0.7%, a 0.5% rise was expected. September trade deficit widened to -36.4 7bln, a deficit of 30bln was expected. November Michigan consumer sentiment falls to 66 from 70.6 in October, a reading of 71 was expected.

Upcoming US data:
Next week’s US economic calendar includes November 16th release of November Empire State manufacturing index expected at 31 compared to 34.5 last month. October retail sales and business inventories will also be released on November 16th with retail sales expected to rise by 0.8% compared to -1.5% last month and business inventories expected to fall by 0.6%. On November 17th October PPI will be released expected to rise by 0.4% compared to -0.6% last month. October industrial production, capacity utilization and the November NAHB index will also be released on November 17th. Industrial production is expected to rise by 0.4% compared to 0.7% last month, capacity utilization is expected at 70.8 compared to 70.5 last month and the NAHB index is expected 19 compared 18 in October. On November 18th October CPI will be released expected unchanged at 0.2% along with October housing starts and building permits. The housing starts are expected to rise to 600k from 590k last month and building permits are expected at 580k compared to 573k last month. On November 19th initial jobless claims for week ending the 11/14 will be released expected at 497k compared to 502K last month. October leading indicators and November Philly Fed will also be released on November 19th. Leading indicators are expected to rise by 0.4% compared to 1% last month and the Philly Fed is expected at 12.5 compared to 1.5 last month.

JPY
JPY traded higher Friday supported by a sharp upward revision in Japan’s industrial production and Yuan revaluation rumors. Japan’s September industrial production was revised to 2.1% from 1.4% and capacity utilization rose by 1.6%. Rumors are circulating that China may be considering a one time Yuan revaluation and JPY benefits as a proxy for the potential that the Yuan revaluation may lead to a rise in Asian currencies. Despite today’s upward revision in Japan’s industrial production Japan’s finance minister said that the Japanese economy remains unstable. Focus turns to Monday’s release of Japan’s Q3 GDP. The GDP report is expected to show that Japan’s experienced back to back quarters of growth. In light of the upward revision in the industrial production data the GDP may actually come in above expectations. Market consensus is that Q3 GDP will rise by 0.7% and 2.9% annualized basis.

Next week’s Japanese economic calendar includes the November 16th release of preliminary Q2 GDP expected at 7% compared to 0.5% last month. On November 17th September tertiary activity will be released expected at 0.4% compared to 0.3% last month. On November 18th revised September leading indicators will be released expected at 0.8% compared to 2% last month. On November 19th September all industry activity will be released expected at 0.6%.

Key technical levels to watch in USD/JPY include support at 89.18 the November 2nd low with resistance at 90.86 the November 6th high.

EUR
EUR traded higher supported by report that EU GDP expanded in Q3. EU Q3 GDP rose by 0.4%. The rise in the EU GDP was slightly less than expected as market consensus expected a 0.5% rise. Nevertheless the rise in EU Q3 GDP confirms that the EU economy is emerging from recession. The EU Q3 GDP report may encourage speculation that the ECB will begin to remove stimulus and consider a timeframe for hiking interest rates. The ECB monthly bulletin says that the EU is likely to see 1% growth in 2010 compared to the original forecast of just 0.3%. Recent statements from ECB officials indicate that the ECB will begin to allow emergency support programs to expire. ECB officials have given no indication that they are in any hurry to raise interest rates.

Next week’s EU economic calendar includes November 16th release of EU HICP for October expected at 0.9% compared to 1.1% last month. On November 17th EU September foreign trade balance will be released expected at -2bln compared to -4bln last month. On November 18th EU September current acount will be released expected at -4.8bln and compared to -5bln Last month.

The technical outlook for the EUR is mixed as the EUR fails to trade back above 1.5000. Expect EUR support at 1.4810 the November 5th low with resistance at 1.5017 the November 12th high.

GBP
GBP traded higher supported by merger rumors and short covering inspired by optimism about the global recovery as EU GDP data indicates that the EU economy has emerged from recession. Rumors that British Airways may merge with Iberia sparked modest demand for the GDP. GBP has been weakening since Wednesday’s comments from BOE Governor King that a weak GBP will help to boost the UK economy and that he is open-minded about expanding BOE’s asset purchases. King was clearly sending a signal that the BOE intends to maintain low yields for sometime to come and that they central bank is a long way from considering withdrawing stimulus. No major UK economic data was released in today’s trade. Focus turns to next Wednesday’s release of the minutes for the November 4/5th policy meeting and Friday’s retail sales. At that November meeting the BOE elected to expand its asset purchases by £25bbln. The trade will be looking at the minutes for clues to whether the BOE plans to again soon expand its asset purchase plan. GBP generally weakens in reaction to news that the BOE is expanding or plans to expand its asset purchase plan. The retail sales report will be important to the debate about whether the UK economy is about to emerge from recession. The trade may also take a look at next week’s report of UK public sector borrowing. Moody’s indicated that the UK’s most at risk for a ratings downgrade because it’s rising government debt.

Next week’s UK economic calendar includes the November 17th release of October CPI expected at 0.2% compared to flat last month. On November 18th September CBI orders will be released expected at this -50 compared to -51 last month. On November 19th October money supply and public-sector borrowing will be released. The money supply is expected is to rise by 0.9% compared to 0.8% last month. Public-sector borrowing is expected to widen to 15.06bln from 14.812bln and last month.  Also on November 19th October retail sales will be released expected at 1% compared to 2.4% last month.

The technical outlook for GBP is mixed on today’s rally back above 1.6600. Expect near-term support at 1.6467 the November 5th low with resistance at 1.6799 for November 11th high.

CAD
CAD traded higher supported by optimism about the global recovery as the EU economy emerges from recession US trade data showed a sharp increase in demand for imports and Canada’s trade deficit shrank. The Septmeber trade deficit narrowed to .927mln from 2.7 bln last month. Canada’s September trade deficit improved despite strong CAD. The fact that Canada’s export sales are rising despite strong CAD may reduce the risk of intervention. The improvement in Canada’s trade balance may be somewhat overstated because a large part of the decline in the deficit was due to improvement in automotive sales reflecting the US government’s cash for clunkers program which has expired. Stock markets rallied in reaction to today’s economic data from the US and EU that suggests the global economy is expanding. CAD benefits from optimism about the global recovery.

Next week’s Canadian economic calendar includes the November 16th release of September manufacturing shipments expected at -0.2% compared to -2.1% last month.

The technical outlook for CAD is positive as USD/CAD trades below since 1.0600. Look for near-term support at 1.0375 the October 21st low with resistance at 1.0610 the November 10th high.

AUD
AUD traded higher supported by Yuan revaluation rumors, optimism about the global recovery and in reaction to statement from Australia’s trade minister that strong AUD is not limiting Australian export sales. As noted above a combination of factors including rising EU Q3 GDP, strong US import demand and this week’s economic data from China which included report of strong industrial and retail sales data fuels optimism about global recovery. Today’s AUD rally was impressive in light of the fact that crude oil traded lower and stocks struggled in early trade. Thursday the AUD traded at a new high for 2009 supported by report of an unexpected improvement in Australian jobs growth. Australia’s October unemployment rate rose 0.1% to 5.8% with jobs growth rising by 24.5k. The trade had expected a 10K loss of jobs in Australia’s last month. The better than expected jobs growth in Australia may intensify speculation that the RBA will hike rates in December. AUD will continue to track the direction of equities and risk sentiment with downside likely limited by RBA rate hike speculation. Last week, the RBA upgraded its outlook for Australia’s growth and inflation and indicated that interest rates will need to gradually rise. The trade expects the RBA to hike rates 25 bps in December.

Next week’s Australian economic calendar includes the November 18th release of Q3 labor price index expected unchanged at 0.8%.

The technical outlook for the AUD is positive as the AUD rallies above 9200. Expect AUD support at 9185 the November 9th low with resistance at 9400.