EUR/USD reached a high of 1.4994 in Asia but, while tantalisingly close, has lacked the incentive to push through the psychologically important 1.50 level. Unsurprisingly, the Ecofin meeting provided a platform for ECB President Trichet to reiterate support for the US Treasury's strong USD policy. Such comments have arguably slowed the pace of the gains in EUR/USD but, while the EUR nominal effective exchange rate is approaching the highs of the past year, the market sees no great risk that the ECB will put its money where its mouth is to prevent the EUR for moving higher. As a consequence a break above 1.500 remains likely near term assuming risk appetite holds up. Stocks this morning are trading lower in Europe despite the gains registered in Asia overnight. The dip in risk appetite is supporting the USD for now. The continued flow of US Q3 earnings will likely have a determining impact on EUR/USD this afternoon.
The JPY found support overnight on the back of comments from Finance Minister Fuji repeating his view that the recent appreciation of the yen is due to the weak USD. USD/JPY pushed down to 90.10 before the USD found support. Fuji also remarked in an interview with the Nikkei that tax revenues this fiscal year could drop below JPY40 trn, lower than the JPY46 trn estimate unless growth picks up dramatically in the coming months. This highlights the dismal position of Japanese national accounts.
EUR/GBP is consolidating around the 0.9125 area this morning with today's data releases having had little impact. The release of the UK PSNCR data at GBP14.8 bln was a little better than expected but still represented the highest Sept borrowing requirement on record.
September M3 data was stronger than expected at +0.7% m/m. On the margin this suggests that QE may be having an increased impact. However, with the BoE still seeing inflation pressured lower by spare capacity the possibility of more QE remains on the table and this should hinder the ability of sterling to climb higher vs the EUR near-term.
AUD/USD briefly edged above the 0.9300 level in Asian hours following the release of the minutes of the RBA's Oct meeting. The RBA concluded that ''very expansionary setting of policy was no longer necessary'' which strengthened the market's view that the RBA will hike again in Nov. This afternoon the BoC's policy meeting will be watched for any indication that it will bring forward the risk of a rate rise and for any change in its grading of the risk posed by the strength of the CAD. USD/CAD is edging above the 1.0300 level at present reflecting some concern that the BOC could underline its concern over the exchange rate. Brent futures are trading back below the $80/b level at present following a flurry higher overnight. Further USD weakness this week would lend fresh support.
This afternoon US PPI data will serve as a reminder of the lack of price pressures. US housing starts, ABC consumer confidence and Canadian leading indicators are also due. The BoC policy meeting is at 13:00 GMT.
