13 November 2009 at 13:56 GMT
US Trade deficit increases by most in a decade - but risk appetite still more important for USD direction
University of Michigan Confidence on tap later - will we see follow up to improvement in ABC weekly poll?
Economic Data Highlights
- New Zealand Oct. REINZ House Sales rose 36.3% YoY vs. 43.7% in Sep.
- New Zealand Oct. House Price Index rose 1.3% MoM
- New Zealand Oct. Non-resident Bond Holdings fell to 71.2% from 72.1%
- Japan Oct. Consumer Confidence edged up to 40.8 vs. 40.5 expected and 40.7 in Sep.
- Germany Q3 GDP rose 0.7% QoQ and fell -4.8% YoY vs. +0.8%/-4.8% expected, respectively
- Switzerland Oct. Producer and Import Prices fell -0.4% MoM vs. +0.1% expected
- EuroZone GDP Q3 GDP rose +0.4% QoQ and fell-4.1% YoY vs. +0.5%/-3.9% expected, respectively
- Canada Sep. International Merchandise Trade out at -0.9B vs. -1.8B expected
- US Sep. Trade Balance out at -$36.5B vs. -31.8B expected
- US Oct. Import Price Index rose 0.7% vs. 1.0% expected
Upcoming Economic Calendar Highlights
- US Nov. Preliminary University of Michigan Confidence (1500)
- US Fed's Evans, Noyer to Speak (1630)
- US Fed's Dudley to Speak (Sat 0130)
- New Zealand Performance of Services Index (Sun 2130)
- New Zealand Q3 Producer Prices (Sun 2145)
- Japan Q3 GDP (Sun 2350)
- UK Nov. Rightmove House Prices (Mon 0001)
- Japan BoJ Governor Masaaki Shirakawa to Speak (Mon 0030)
Market Action
The USD posted an interesting and fairly decisive move to the strong side yesterday, but the action overnight and through the first part of the European session saw a slow grinding consolidation of that move, testing the mettle of those looking for a stronger dollar ahead of the US trade balance number. The JPY continued to power stronger across the board, however, as yesterday's comeback in the bond market despite a disappointing US 30-year T-bond auction provided a bit of stimulus. The market largely shrugged its shoulders at slightly disappointing German and EuroZone growth figures, which came in 0.1% below QoQ expectations. The German growth rate was still fairly close to the US rate for the third quarter.
Chart: EURJPY
EURJPY is having a look at the weekly pivot level at 133.40 in early US trading. Flatline support lies not much further to the downside. The big focus remains the 200-day moving average down below 132.00 for whether EURPJY will ever break out of the bigger range established months ago.
US GDP not as good as it looked?
Goldman Sachs was out yesterday indicating that US GDP was overstated, however, as it perhaps sought to justify its downgrade of the US growth estimate just before the strong release two weeks ago. Their argument is that the contribution of small firms in the advanced estimates of growth are likely overstated in the recent estimate, and data gathering for small firms, which are very important for the US economy, is very difficult. If they are right, then we might expect a downgrade of subsequent Q3 growth estimates for the US, though this has perhaps little bearing on the market action
A few technical notes
Interesting to note where the consolidation in the stronger dollar move is meeting resistance and other developments since yesterday - here are a couple of notes:
EURUSD: found resistance within a few pips of the daily pivot around 1.4900 - so today's high looks to be the key short term hurdle for those looking for the strong USD move to fail. To the downside, the 1.4825 area was interesting last week, and is also near the low yesterday - a break there opens up for that key 55-day moving average coming in around 1.4720. The weekly pivot lies just below 1.4800.
USDJPY: reversal of yesterday's move into the Ichimoku cloud rejects any bullish impulse for now. Focus shifts to recent 89.28 low and then low or the cycle at 88.01.
EURJPY: found support right on the weekly pivot at 133.40 ahead of the US trade numbers. There is also a flatline support coming in just below this level. The major downside point of interest is the 200-day moving average at 131.75 if things really get going in a southerly direction.
GBP: 0.618 Fibo retracement for recent GBPUSD sell-off from above 1.6800 comes in at 1.6720. In EURGBP, focus is already shifting to recent 0.8897 low and then the 0.8867 200-day moving average
USDCAD: short term focus on 21-day moving average as high yesterday was right on this level. That MA comes in at 1.0586 today and 1.0577 was yesterday's high. There is also a line of resistance at 1.0600, so a move above this level is needed to help setup any further upside arguments.
AUDUSD: making things uncomfortable for the USD bulls today with a move above the daily pivot at 0.9272, a level at which it has found support since breaking above in the European session today (writing this ahead of the US trade balance release). The four day low at 0.9209 is the focus if the sell-off is renewed, though interest really picks up at the massive rising trendline stretching back to March and with multiple touches.
US Trade Balance
The US Trade deficit jumped to -$36.5B, a much larger deficit than expected and the largest one-month increase in the deficit in a decade. The number was aggravated by the cash for clunkers auto-buying incentive, and inventory building could also be partially at fault. An article in the Wall Street Journal today ("The Case for a Weak Dollar Isn't Strong"), however, claims that trade data doesn't have the common sense effect on currency levels one would think. To take another example, Australia's trade balance has been going sharply in the wrong direction ever since the AUD began its furious rally earlier this year. Still, with the current market theme that the greenback is in trouble because of lack of fiscal credibility and its current account deficit, the initial reaction makes some sense. Higher risk appetite would be needed, however, to turn the tables on the recent USD advance.
Looking ahead
The USD initiated a rally from very interesting levels in recent sessions and created rather compelling patterns in a number of crosses yesterday. However, the momentum thus far has been fairly modest, so to really get things rolling for a larger consolidation, the greenback needs to make a statement today - especially after the challenge provided by the ugly trade number.
Next week's calendar features US Retail Sales and the Empire Manufacturing index on an unusually busy Monday in the US. The rest of the week is full of inflation data from the US, UK, Canada and Germany (producer prices only there).
Have a great weekend.