US Democrats win control of Senate and the House of Representatives

• US Democrats win control of Senate and the House of Representatives.
• BoE raise rates as expected.
• Commentary from Asian officials moves currencies.

Last week’s currency trading review

The Dollar weakened against the majors towards the end of the week as political uncertainty was removed with the Democratic win in the US. In a crushing win, control by the Democrats of the legislative assemnly was widely viewed as bearish USD as it would mean reform changes would be slow to come by. This bearish sentiment was supported by a weaker than expected Michigan consumer sentiment, however, a better than expected trade balance did little to support the greenback as commentary from Japan and China sparked a USD selling rally. Governor of the Bank of Japan Fukui commented that he was wary of the size of global carry trades and its implications if there were to be an appreciation of the Yen from unloading of these trades. Coupled with these comments, the Chinese central bank chief Zhou highlighted his plan to diversify it’s mostly USD denominated assets into emerging markets, oil, and other currencies. The Euro rallied on the back of comments from Asian officials although retail sales were poorer than expected. The Euro closed the week at 1.2849 having started the week at 1.2722. The Japanese Yen also rallied initially against the USD after better than expected leading indicators, and the comments from Governor Fukui. USD/JPY closed the week at 117.61 having started the week at 118.27. The Sterling closed last week at 1.9116 having started the week at 1.8971 as the Bank of England increased rates by 25 basis points to 5.00%. The Aussie closed the week at 0.7671 having started the week at 0.7716 after poorer than expected employment figures came in despite the unemployment rate falling.

The forex trading week preview

In the States; with the legislative elections out of the way, the market will be focused on inflation related data this week with PPI and retail sales (Tuesday) expected to come in stronger compared to previous results. CPI (Thursday) will hopefully give an insight into the inflationary pressures in the US. Other important data include the FOMC minutes (Wednesday) and net foreign security purchases (Thursday), both of which will shed some light on the current state of the economy according to the Federal Reserve and trade imbalances respectively.

We will provide our previews of these data releases in the daily summary.

In the Eurozone; GDP flash estimate (Tuesday) will be looked at closely at the start of the week, with the market expecting a slightly softer number. The German ZEW survey (Tuesday) also is expected to continue its deterioration of late. Other important releases include industrial production (Wednesday) and HICP headline/core (Thursday) both of which are expected to come in softer than previous results.

We will provide our previews and reviews of these data releases in the daily summary.

Key Weekly Pivot levels

Euro 1.2850

Initial support at 1.2827 (Nov 10 low) followed by 1.2721 (Nov 7 low). Initial resistance is now located at 1.2901 (Nov 10 high) followed by 1.2941 (Aug 21 reaction high).

Yen 117.50

Initial support is located at 117.18 (Nov 10 low) followed by 116.97 (Nov 1 low). Initial resistance is now at 118.61 (Nov 9 corrective high) followed by 119.67 (Oct 24 high).

Pound – 1.9115

Initial support at 1.905 (Nov 10 low) followed by 1.8974 (Nov 9 low). Initial resistance is now at 1.9182 (Nov 10 high) followed by 1.9219 (Apr 20, 2005 reaction high).

Australian Dollar – 0.7665

Initial support at 0.7633 (38.2% retracement of the 0.7414 to 0.7769 advance) followed by 0.7592 (50% retracement of the 0.7414 to 0.7768 advance). Initial resistance is now at 0.771 (Nov 11 high) followed by 0.7769 (Nov 1 high).

Gold – 628

Initial support at 613.4 (Nov 8 low) followed by 598.5 (Oct 31 low). Initial resistance is now at 636.9 (Nov 10 high) followed by 640.6 (Sep 6 high).