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Forex Daily Overview

USD lower, manufacturing ISM beats expectation

Mon, Nov 2 2009, 18:23 GMT
by Michael J. Malpede

Easy Forex

• USD: Lower, stocks rally, construction spending, ISM and pending home sales rise
• JPY:Lower, Japan's PM says JGB issuance must be below ¥44 trln, tracking stocks
• EUR:Higher, manufacturing PMI rises to 18 month high
• CHF: Higher, manufacturing PMI weaker than expected, KOF at 17 month high, threat of intervention
• GBP: Mixed, manufacturing PMI rises to a two-year high, UK government to break up banks
• CAD and AUD: AUD & CAD higher, RBA rate hike speculation, higher price of gold and crude
  

Overview

USD starts the week lower pressured by improving risk appetite sparked by report of better than expected manufacturing PMI data from Europe, Asia and the US. AUD outperformed supported by RBA rate hike speculation, an upgrade of Australia's fiscal and economic outlook report of a sharp rise in Australian Q3 house prices. GBP underperformed with upside limited by weak UK bank shares and report that the UK government plans to split a number of UK banks including RBS. UK manufacturing PMI rose to its best level in almost 2 years. The UK manufacturing PMI helps limit selling pressure in the GBP. Commodity currencies were supported by a sharp rise in the price of gold and crude as improvement in manufacturing PMI points to expansion of the global recovery. China's PMI for October rose to 55.2 from 54.3. Strong Chinese and US PMI data adds to demand for the commodity currencies. US economic data was strong with September construction spending rising, October ISM beat expectations and pending home sales were up for the eight straight month. Stocks traded at the day’s highs and USD at the day’s lows after the release of today’s US economic data. The stock rally fuels risk appetite.

This weeks focus turns to central bank meetings in Australia, the US, the EU and UK and Friday's release of US unemployment. The RBA meet Tuesday and the central bank is expected to hike rates 25bps. The Fed meets on Tuesday and Wednesday and is expected to hold monetary policy unchanged. In light of the improving outlook for the US economy the Fed may drop its language that interest rates will remain low for an extended period. The ECB and BOE meet on Thursday. The ECB is expected to leave monetary policy unchanged. There is a great uncertainty over whether the BOE will elect to expand its asset purchase program as UK GDP posted a negative result. US unemployment is expected to rise to a new 26 year high but nonfarm payroll job losses will likely be less than 200k. The trade will be monitoring closely central bank policy decisions and how they may impact global liquidity and the economic recovery. The US unemployment report will be key to investor risk sentiment and speculation about whether the US recovery is sustainable. FX price direction remains closely correlated to equities and risk sentiment.
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Today’s US data: 

September construction spending rose 0.8%, a -0.3% reading was expected. October ISM rose to 55.7, a reading of 53 was expected. October pending home sales rose 6.1%..

Upcoming US data: 

NOn November 3rd September factory orders will be released expected at 1% compared to -0.8% last month along with domestic auto sales for October. The FOMC begins a two policy meeting on November 3rd. On November 4th October ADP employment and nonmanufacturing ISM Index will be released. The GDP report is expected at - 188k compared to -254k last month and nonmanufacturing ISM is expected at 51.8 compared to 50.9 last month. On November 5th initial jobless claims for week ending 10/31 will released expected at 521k compared to 530k last week. Q3 productivity and unit labor costs will also be released on November 5th. Q3 productivity is expected at 5.5% compared to 6.6% last month and unit labor costs are expected at -4.5% compared to -5.9% last month. On November 6th October nonfarm payroll and unemployment will be released. The nonfarm payroll is expected at -175k compared to -263k last week and the unemployment rate is expected to rise 0.1% to 9.9%.. 

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Published on  Mon, Nov 2 2009, 18:29 GMT