USD - The FOMC meeting was last week's main event, but the Fed did not spring any surprises on the markets. It announced its intention to buy USD600bn of bonds over the coming eight months. The USD looks set to remain in the spotlight following last week's sell off versus other majors on the back of the Fed's policy announcement. The better than expected US non-farm payrolls report for October also seemed to offer the USD some support. This week should be relatively quiet in terms of US data releases, after last week's overload of events. On Wednesday trade balance figures will reveal whether exports are starting to pick up. Over recent months, imports have rebounded faster than exports - adding to US trade imbalances. In addition, the University of Michigan consumer confidence index is expected to increase slightly to 68.0, driven by the recent rebound in equity markets. Even though there will only be a few Fed speeches next week, they might primarily elaborate on the statement from Wednesday's FOMC meeting.
EUR - At the ECB press conference, ECB President Jean-Claude Trichet did not seem much affected by the fact that US monetary policy is moving in a very different direction from that of the ECB. In the Eurozone, the focus this week will be on flash GDP figures for Q3 to be released from most countries, with the euro-area flash estimate as the grand finale on Friday. The data is expected to show a substantial slowdown compared with Q2, but growth might nevertheless remain at a fairly decent 0.4-0.5% q/q. Higher growth in Germany is in the cards while Greece and possibly Spain will contract. German industrial production for September disappointed, coming in at -.08% (7.9% YoY). Trichet's speech on "How to overcome the crisis" on Wednesday should also attract some attention.
GBP - GBP is weaker this morning, primarily on the back of the healthy U.S. employment figures from Friday. The market is focused on Wednesday's release of the Bank of England's quarterly inflation report, which will update the central bank's view on inflation and whether they still expect inflationary pressures to ease. To date the central bank has sounded relatively unconcerned with the inflationary pressure in the system.
JPY - The yen is the only primary currency to have strengthened against the USD overnight. The softening in leading and coincident index in Japan has had little impact on the currency as it is benefitting from a spike in risk aversion. The same flows that poured into JPY assets with the announcement of the European debt crisis over the summer are seeking refuge from EUR exposure with the announcement that Ireland may need to access aid from the EU's fund as it struggles to cut its deficit. Look for the JPY to be the primary beneficiary of ongoing negative news coming out of the Eurozone.
CAD - Like nearly all the other major currencies, CAD is down this session due to momentum from last week's relatively strong U.S. employment data. The Canadian government's decision to block the BHP/Potash merger is drawing the attention of the markets. Trader's fear is that foreign direct investment interest in Canada, given the new political hurdles, may be a drag on the flow of funds into Canada. However, the loss of any potential FDI on a less hospitable political environment is being offset by historically high portfolio investment in the country. In fact, the 1yr rolling sum of portfolio and FDI flows through the year ended Q2'10 have surpassed any previous historical levels and remain strong into year-end. Thus, the loss of potential FDI, while negative on the margin, does not necessarily put the CAD supportive flow-story at risk.
MXN - The Mexican peso has weakened with other Latin American currencies on the improved economic outlook in the United States following Friday's report showing an unexpected jump in non-farm payrolls. However, the peso has gained momentum since the 1st of November and is expected to continue to do so, along with other higher yielding currencies, as it gains traction after the QE2 announcement and as investors increase their appetite for risk.
AUD - While the AUD sold off in Asia today, it has been this quarter's best-performing major currency against the USD. Further, it's the most overvalued currency according to data compiled by Bloomberg. Purchasing power parity, a measure of the cost of goods relative to other countries, shows the AUD is 32 percent overvalued. Rising interest rates and higher commodity prices should continue to support the AUD, despite the overvaluation that appears to be revealed from the analysis.
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