Busy week ahead as we wait for the EURUSD range to resolve

Today has been an odd day – as Friday’s awful close in the US and all of the negative energy that seemed to be forming around poor US earnings has failed to ignite a wider bout of fear. We have to wait for the usual suspect levels fall (1.3000 in EURUSD, maybe 1.0250 now in AUDUSD, and parity in USDCAD, 1.5975 in GBPUSD and 0.8100 in EURGBP) before we start looking for a bigger move higher in the USD and until then, we’ll have to bide our time within the range and see if the US equity market can do the heavy lifting required to fully reverse the short term negative momentum developed on Friday. My implicit assumption, of course, is that any further crumbling of risk appetite from here would be accompanied by a USD rally.

Today’s must read is from our Chief Economist Steen Jakobsen on the prospects for a return of volatility on the Euro issue as this last week’s EU summit failed to resolve much if anything, and may have simply popped the top on fresh cans of worms (read: banking union).

Also worth a look is a piece by Bloomberg Businessweek on the lack of traction in the FX market on the heels of the promise of potentially infinite QE from the Fed: Low Carry Trades Show Central Banks Hitting Limits.

Also note the incredible variety of results from the various polls on the upcoming US election over at www.pollingreport.com , which show everything from a strong lead by Obama (IBD/TIPP) to the same for Romney (Gallup) to everything in between. It is only clear that the situation is very tense. 

Economic Calendar’s biggest highlights this week
This week sees a few interesting event risks. All the while, keep an eye on the latest earnings reports. Note that US machinery giant Catepillar reported weak results and sees soft demand ahead as AUDUSD trades over 1.0300.

Tuesday
It’s Canada day as USDCAD has consolidated most of the way back to the pivotal parity level on Monday, with Retail Sales and a Bank of Canada rate decision (policy guidance more important). Watch oil and risk appetite as confirming indicators as the pair has now priced in a more dovish BoC. As well, note the recent story on Canada not approving the multi-billion CAD takeover of Progress Energy Resources by Malaysia’s Petronas. This could also logically extend to the even bigger deal announced of China’s CNOOC trying to acquire Nexen – a deal worth CAD 15 billion.

Wednesday
China HSBC Flash Manufacturing PMI and Flash manufacturing and services surveys for Germany/Europe. The market will be looking for further signs of stabilization to justify current widespread complacency on China and Europe.

Germany IFO – trend has been strongly negative recently. EURUSD up here needs a strong survey to stay elevated.

US FOMC meeting – QE3 or QE-to-Infinity is in the bag – what is the one-up on infinity from here? QE to Infinty squared and Nominal GDP targeting, one supposes, though for now, I would expect a rather boring FOMC meeting as the Fed can hardly downgrade its language on the economy after all of the recent positive surprises in US data and will need some period of wait and see before realizing they have failed once again and inevitably one-upping on their failures thus far.

Thursday
RBNZ decision (late Wednesday in US/Europe) – no expectations as we see if the AUDNZD bear returns (default expectation if we stay below 1.2700/1.2750 and NZD in crosses outside of AUDNZD will generally trade in correlation with risk appetite). Look out for potential complains about the currency’s strength.

Sweden’s Riksbank – SEK is a confusing play in this environment – weak on Euro weakness or strong as safe haven for the same reason and despite possible risk aversion? I would suspect that SEK not the place to go if we see the whites of the market’s eyes (risk aversion) post FOMC and Riksbank would like weaker currency as numbers have turned ugly in Sweden lately.

US Sep. Durable Goods Orders – these were particularly bad for Aug and the trend is negative, so market looking for a rebound.

Friday
US Q3 GDP numbers – preliminary estimates – I never find these interesting, but they get an awful lot of attention – expectations are running at 1.9% annualized versus the 1.3% for Q2.