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Market Session Recaps

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London Session

Wed, Nov 4 2009, 10:58 GMT
by Forex.com Research Desk

FOREX.com

Goods news has lifted risk appetite this morning. Better than expected earnings reports in Asian hours were followed by good news from UK retailers. The EUR is higher vs the USD and the JPY. The weaker USD is feeding the rally in gold. Cable has been pushing higher from the European open, receiving an additional boost on the release of UK economic data. Cable reached USD1.6540 before sellers emerged, EUR/GBP sunk to 0.8920.

Optimism in the UK received a boost on the release of stronger than expected UK services PMI for Oct at 56.9. Given also the expansion noted in the Oct manufacturing survey earlier in the week, the UK economy appears to be on track for decent growth in the final quarter. Of course, the improvement in the PMI services survey during the third quarter was a prime reason why economists failed to foresee the actual -0.4% q/q contraction in the official Q3 GDP report. While today's number will increase confidence that this number will be revised higher on Nov 25, it also suggests that there could be a sizeable delay between the PMI data and the official GDP series.

Australian data failed to continue the theme of good news. Sep retail sales fell a greater than expected -0.2% m/m although on a quarterly basis the data was largely in line with expectations. The data strengthens the view that the RBA will not follow through with a third rate hike next month and suggests that the pace of rate hikes into 2010 may indeed be 'gradual', in tune with the comments from the RBA's Stevens yesterday. Aided by the general pick up in risk appetite, AUD/USD has recouped the losses made on the release and is presently pushing above 0.9080.

The softer tone of the USD has continued to push gold prices higher. Spot prices are presently trading at a USD1093.79 high. Yesterday's news of India's purchase of 200 metric tons from the IMF is estimated to have bolstered India's gold holdings to 6.2% of its foreign exchange reserves. This is still far lower than the 20% ratio estimated about 15 year ago. This present relatively conservative ratio should diminish speculation that India is deliberately diversifying away from USDs.

This evening's FOMC meeting is the clear key event of the session. The market is generally expected to maintain its statement that the Fed will continue to keep rates low for an 'extended' period. Any discussion on QE will also be looked for. The Fed last week ended its USD300 bln Treasury bond purchase scheme, though it will carry on buying mortgage securities.

Aside from the FOMC, the US ADP Oct jobs report in addition to the ISM non-manufacturing data are due.

Published on  Wed, Nov 4 2009, 11:16 GMT