USD – There is a heavy week of US economic data this week with retail sales, manufacturing sentiment, CPI, and housing data all on the calendar. Retail sales – released this morning – rose more than estimated in September, reflecting broad‐based gains that indicate household spending helped bolster economic growth last quarter. The 1.1 percent advance followed a revised 1.2 percent increase in August that was the biggest since October 2010. Manufacturing in the New York region contracted for a third straight month in October as shipments and employment declined. The Federal Reserve Bank of New York’s general economic index rose to minus 6.2 from minus 10.4 in September. Tomorrow, core CPI is expected to remain modest, increasing 0.2 % m/m, whereas headline CPI is likely to be somewhat higher at 0.4% m/m as a result of last month’s increase in oil prices. On Wednesday, we will get the latest updates on the housing market in the form of the NAHB house builders’ index; housing starts are forecasted to come in at 770K, building permits at 810K, and existing home sales at 4.75M for September. The ongoing earnings season should also garner plenty of interest and help set the tone for investor sentiment. Industry giants reporting this week include Citigroup, Goldman Sachs, Intel and Google, and investors will be looking for any evidence of a slowing global economy.
EUR – The EUR is slightly stronger against the USD, following a weekend of IMF meetings which focused on the Eurozone. EUR is trading in tight ranges, between 1.28 and 1.31, as the focus for investors is the EU summit later this week with Spain and Greece in the spotlight. The market is awaiting clarity on when Spain will request a bailout, and expectations for a EUR rally once Spain seeks a rescue package have kept traders from betting heavily against it. Meanwhile, uncertainty over whether Greece can agree on a new austerity measure with its indebted lenders has discouraged some investors from buying the euro. On a positive note, the ECB has said it will buy bonds of countries that apply for a bailout which would bring down the country's borrowing costs and probably spark a broader increase in investor appetite for risk. In addition, Eurozone officials have stated that Spain may ask for financial aid from the Eurozone next month and the request would probably be dealt with alongside a revised loan program for Greece. As some investors anticipate the EU summit, many are also predicting it to be uneventful. As such, the EUR may continue to trade in its current narrow ranges this week.
GBP – The sterling lowered against the dollar on Monday, as investors see the vulnerability of a weak UK economy. Inflation, employment, and retail sales data are due later this week, leaving investors wary of third quarter GDP. Bank of England Governor King plans to increase the supply of currency, adding to the risk of the central bank for more asset‐buying quantitative easing next month. Domestic data due later this week will reveal whether or not the economy has recovered after three consecutive quarters of contractions. Lee McDarby, head of corporate and institutional treasury at Investec comments, “third quarter GDP has got to come kicking back into positive territory.” McDarby states that if third quarter GDP is not in positive territory, investors will be wary of buying sterling as it reminds the market “that the UK is in a bad position at the moment and cannot disassociate itself from the negative effects of the Eurozone.” Current data shows downward potential for the sterling in the near term.
JPY – The JPY weakened against most of its major counterparts this morning as a report showed U.S retail sales rose more than forecast in September, reducing demand for safety. The JPY is underperforming after the announcement of Softbank’s $20bn bid for Sprint. Officials at the MoF are likely to be pleased with the upswing in USD/JPY, though resistance at the 100 day MA (78.76) remains strong. BOJ Governor Shirakawa again repeated that the yen is an important factor in the current
monetary stance while members of the government repeatedly stressed that the yen was over‐valued. Domestic data are weak, given the ongoing contraction in industrial production, and will color policymakers considerations of additional stimulus ahead of the next BoJ meeting on October 30th.
Commodity Currencies – The commodity linked currencies are mixed this morning as futures on crude oil fell below $90 a barrel and raw goods prices are lower as equity futures point to a positive open. The CAD erased gains against USD this morning as crude oil is down, the nation’s largest export, reducing demand for riskier assets. Recent USD/CAD congestion has remained near 0.9800, at the lower end of the range for October. Market expectations for BoC policy remain steady, pricing in a 20% probability of a rate hike in the next 12 months. The MXN rose for a third day as U.S retail sales increased
more than forecast, bolstering speculation that economic growth of Mexico’s largest trade partner is accelerating. The MXN also got a boost from speculation Spain is moving closer to requesting a sovereign bailout which encouraged investors to seek
the peso’s relatively high yields continuing appetite for MXN remaining strong. The AUD is flat this morning after a decline at the end of last week, despite mixed to stronger data out of China, as the key figure of import growth came in as expected. The central bank releases minutes tomorrow of its October meeting, at which it cut interest rates for the first time in four months. Near term movement is likely to see a domestic impact from the RBA minutes release, where market expectations continue to favor a dovish bias. However, for AUD, the level of interest rates remains supportive relative to its peers. South Africa’s rand slid against all of its 16 most traded peers after S&P’s cut South Africa’s credit rating, citing concern that a wave of strikes in the mining industry is placing pressure on government spending.
RMB – USD/CNY weakened today in Asian trading after setting a new record intraday high of 6.2583, the strongest opening since the domestic currency market launched in 1994. The move was prompted by commercial clients selling off dollars and the lack of intervention by China’s central bank which sent a message that they are willing to let market forces drive the RMB, even if only temporary. In other news, trade figures came in better than expected with export growth rising 9.9% Y/Y and import growth coming in at 2.4% Y/Y as expected. Inflation also came in line with expectations at 1.9%. The market will look towards China’s GDP release on Wednesday for further direction into the world’s second largest economy, where some economists feel that growth may have slowed to 7.4%.
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