USD finds more (temporary) respite with other pairs also retreating from highs


MAJOR HEADLINES – PREVIOUS SESSION

  • GE Sep. Industrial production out at +2.7% n/n vs. +1.0% expected and revised +1.8% prior

  • CA Oct. Housing Starts out at 157.3k vs. 158.5k expected and revised 149.3k prior

  • NZ Oct. Card Spending out at -0.2% m/m vs. +0.7% prior

  • JP Sep. Current Account out at ¥1567.9b vs. ¥1510b expected and ¥1171.2b prior

  • JP Sep. Trade Balance out at ¥599.2b vs. ¥630b expected and ¥303.7b prior

  • JP Oct. M3 Money Stock out at 2.4% y/y vs. 2.3% expected and revised 2.1% prior

  • JP Oct. Bank Lending out at 1.5% y/y, as expected, vs. revised 1.5% prior

  • UK Oct. RICS House Price Balance out at 34% vs. 28% expected and revised 21% prior

  • AU Oct. NAB Business Conditions out at 12 vs. 3 prior

  • AU Oct. NAB Business Confidence out at 16 vs. 14 prior

  • JP Oct. Economy Watchers Survey (Current) out at 40.9 vs. 43.1 expected and 43.1 prior

  • JP Oct. Machine Tool Orders out at -42.6% y/y vs. -62.1% prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • GE Final CPI (0700)

  • Sweden Industrial Production/ Orders (0830)

  • UK BOE’s Haldane to speak (0900)

  • UK Trade Balance (0930)

  • UK DCLG House Prices (0930)

  • GE ZEW Surveys (1000)

  • EU ZEW Survey (1000)

  • US NFIB Small Business optimism (1230)

  • EU ECB’s Wellink to speak (1330)

  • US Fed’s Lockhart to speak (1415)

  • US IBD/TIPP Economic Optimism (1500)

  • US Fed’s Yellen to speak (1505)

  • EU ECB’s Gonzalez-Paramo to speak (1545)

  • US Fed’s Rosengren to speak (1615)

Market Comments:

The weak dollar baton that was passed to Europe from Asia yesterday managed a full circuit as the trend continued throughout the overnight session. The blank data slate ensured that momentum on Wall St was driven by European influences and the leftover sentiment from the weekend G-20 meeting. EU data generally came in better than forecast (German IP +2.7% m/m vs. +1.0% expected and EU Investor Confidence at -7.0 vs. -12.0 expected) and this helped wall St post the sixth straight session of gains (November going well so far….). The USD index slid down to test the lows at 75.05 from 3 weeks ago and currency gains against the greenback were broad-based with EUR making it above the 1.50 mark, AUD above 0.93 and GBP above 1.68. New highs for gold above 1,100 were also printed.

After mild profit-taking at the NY close, Asia was out of the blocks putting risk on again and we posted highs above 1.50 on EUR and 0.93 on AUD (GBP held back) but the drive appeared to run out of steam and a corrective retracement ensued, below NY closing levels.

As the EUR regains the 1.50 handle, so the rhetoric from various European business lobbies increases. Overnight Business Europe, a pan-EU lobby group said the EUR’s strength has reached pain threshold and ran contrary to commitment of the G-20 countries for an orderly resolution of global imbalances. They called on EU leaders to “push the message” in Beijing that China must let the Yuan rise. In addition, the European Employers Group commented that they were “deeply concerned” by the EUR’s gains. However, yesterday’s headline data may suggest that some EU businesses are coping OK with a higher EUR, with German exports up 3.8% m/m in September (though it is noted that we have pushed even higher in October and November). A study from Duisburg University reckons that even German exports will begin to suffer “dramatically” if EUR goes above the 1.55 level for long.

Of the data releases in Asia, those related to the UK provided the most reaction. The BRC Retail Sales monitor, seen as a more accurate picture of retail activity in the UK, rebounded strongly posting like-for-like gains of 3.8% y/y in October (from 2.8% in September) while the RICS House Price Balance came in at +34 in October versus a revised +21 in September (consensus +28). However, the reaction to this better data was muted as it had been leaked in the UK Times some minutes beforehand. News that Cadburys had urged shareholders to reject the offer from Kraft also took some of the wind out of GBP’s sails and, in conjunction with the dollar’s mild rebound, GBP edged lower. Then the news hit. Ratings agency Fitch commented that the UK was at most risk among the major economies of losing its AAA status, with Germany being the least. GBP stood no chance and was quickly through stops below 1.67. Other majors followed suit to a lesser degree and the USD index is pushing up 0.23% towards the close of the Asian session. But it was not all over…later Fitch reiterated that the outlook for the UK remained stable and expected fiscal consolidation. The rebound in GBPUSD was a quick 60 points but still looking a bit shaky.

In other data, Australia’s business conditions continued to improve in October, reaching levels not seen since early 2008. NAB’s main index surged by 9 points to +12, while the confidence index also recovered to near 6-year highs. The rise in the conditions index was helped by gains in profitability, sales and employment (a positive input into Thursday’s employment report?). Generally a very positive report but AUD failed to make much ground. We may have to wait for the correction to play out before we head back up.

China’s slew of data releases are on the radar tomorrow. Most indicators of economic activity are expected to show improvement in October, according to the latest surveys. For today, the European session features German CPI, wholesale prices and ZEW sentiment surveys. UK trade data also due but the US session is restricted to IBD/TIPP economic optimism and a slew of Fed speakers: Lockhart, Rosengren and Tarullo. We also have the very large auction of $25 bln worth of 10-year T-notes hot on the heels of last night’s $40 bln 3-year auction which was well received with a bid/cover ratio of 3.33 and record indirect bidder demand.