-
Canadian Dollar Gains as Canadian Housing Starts Rise 5.4% to 10-Month High
-
Euro Testing 1.50 Again on Signs Economy Emerged from Recession in Q3
-
British Pound May Come Under Pressure Ahead of BOE Quarterly Inflation Report
US Dollar, Japanese Yen Down as G20 Revives Hopes for Global Recovery
Stocks, commodities and carry trades rallied at the start of trading this week in response to signs the global economy will grow further in coming months, which ultimately translated into US dollar and Japanese yen weakness. Indeed, the G20 communiqué released over the weekend showed that the Finance Ministers and Central Bank Governors agreed to "maintain support for the recovery until it is assured," and also described intentions to strengthen regulations.
Meanwhile, despite the sharp decline of the greenback since the start of 2009, the International Monetary Fund commented in a report on November 7 that the currency is still “on the strong side.” Furthermore, the IMF stated that the US dollar is “now serving as the funding currency for carry trades,” which may be “contributing to upward pressure on the euro and some emerging-economy currencies.” For those who have noticed the link between the US dollar and the other major funding currency – the Japanese yen – the IMF’s comments likely come as no surprise at all.
Looking ahead to Tuesday, there will be no major indicators on hand, but traders should beware of the event risk surrounding speeches scheduled for two Federal Reserve officials: Atlanta Fed President Dennis Lockhart at 9:15 ET and San Francisco Fed President Janet Yellen at 10:15 ET. Both are due to talk about the US economic outlook, which could easily spark some choppy price action for the US dollar if their comments reflect a decidedly bullish or bearish bias.
Related Article: US Dollar Weekly Trading Forecast
Canadian Dollar Gains as Canadian Housing Starts Rise 5.4% to 10-Month High
The Canadian dollar pushed higher on Monday, leading USDCAD to break below support at 1.06, after data showed that Canadian housing starts rose 5.4 percent in October to an annual pace of 157,300 units from a revised 149,300 units in September. The move marked a 10-month high in starts, and suggests that the Bank of Canada's efforts to reduce interest rates and keep them low is helping to boost demand in the sector. The news runs counter to the disappointing data released on Friday, as the Canadian net employment change fell by 43,200 for the month of October. Indeed, forecasts were actually calling for a net increase in jobs, but a breakdown of the report showed that 59,700 part-time job losses offset any gains in full-time jobs. As a result, the unemployment rate climbed back up to a two-month high of 8.6 percent from 8.4 percent, hurting prospects for a consumer-led recovery.
Related Article: Canadian Dollar Weekly Trading Forecast
Euro Testing 1.50 Again on Signs Economy Emerged from Recession in Q3
The euro rallied toward 1.50 on Monday amidst broad-based US dollar weakness, as well as signs that the Euro-zone largest economy may be pulling the region out of recession thanks to increased trade. The German trade balance surged to 10.6 billion euros in September (not seasonally adjusted), as exports rose 3.8 percent while imports increased 5.8 percent. Likewise, industrial output in Germany rose 2.7 percent in September, suggesting the rise in foreign demand is directly benefiting manufacturers and other producers. On Tuesday, the Germany ZEW survey of investor confidence may yield mixed results for the month of November, as the index of sentiment on current conditions if forecasted to improve for a sixth month to -70 from -72.2, while sentiment on the economic outlook is forecasted to slip for a second month to 55 from 56. Such results would suggest that recent improvements in European growth indicators have inspired confidence, but broad-based uncertainty about the global outlook has left investors somewhat skeptical it will continue. The release of the ZEW results tend to have a very brief impact on the euro, but only if the data is surprisingly strong/weak, and this is likely to be the case this time around as well.
Related Articles: Euro Weekly Trading Forecast, Euro, British Pound Strength May Be Tested by Q3 GDP, BOE Inflation Report
British Pound May Come Under Pressure Ahead of BOE Quarterly Inflation Report
The British pound may have gained nearly 1 percent against the US dollar and Japanese yen, but the currency generally fell versus the rest of the majors as there are lingering concerns that the Bank of England will continue to expand their quantitative easing program. One of the biggest pieces of event risk for the FX markets this week will be the BOE’s Quarterly Inflation Report on Wednesday at 5:30 ET, especially if there are significant revisions to the central bank’s growth or inflation outlook. The BOE’s last inflation report reflected forecasts for GDP to become positive once again during the second quarter of 2010, as the contraction likely bottomed out in Q1 2009. Beyond that, though, any expansion in the UK economy is likely to be very slow. Meanwhile, the BOE’s outlook for CPI called for inflation to remain volatile by falling sharply in the short-term, with BOE Governor Mervyn King noting that he would likely “need to write a letter to the Chancellor to explain why inflation has fallen more than one percentage point below the [2 percent] target.” That said, the Q3 GDP reading of -0.4 percent for the UK was surprisingly weak and suggests some potential for the BOE to push back their estimates for recovery until later in 2010. If this is the case, the British pound could fall very sharply, especially since the BOE recently expanded their Asset Purchase Facility by £25 billion to £200 billion.
Related Articles: British Pound Weekly Trading Forecast, Euro, British Pound Strength May Be Tested by Q3 GDP, BOE Inflation Report
