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Daily Report by Mellon Foreign Exchange
Daily Report by Mellon Foreign Exchange
Key Points - EUR-USD set to range trade ahead of FOMC meeting. - Focus remains on other currencies like NZD, AUD, CAD and the JPY. - Brown delivers usual mix of smoke and mirrors. - Norwegian and Swedish GDP, UK manufacturing output, German manufacturing orders, US unit labour costs and BoC policy announcement feature today.
Market Outlook Yesterday’s rally in EUR-USD was motivated by a combination of the EUR catching up with other currencies against the JPY (EUR-JPY breaking above 142.00) and a more sober assessment of the event risk regarding next week’s FOMC meeting. This should see EUR-USD range trading in the shortterm leaving the focus on the JPY and some of the other currencies like the NZD and AUD that have been the recent outperformers (see below).
Brown’s Budget was characterised by what is becoming a familiar theme – a combination of jiggery pokery on the timing of the economic cycle, so he can hit his so-called Golden Rule and further measures aimed at transferring resources from the private to the public sector. None of this does any favours for underlying GBP fundamentals. The cycle was extended by a further three years on this occasion to help avoid the need for possible tax rises, while oil companies will be picking up some of the bill for shoring up revenues (roughly an extra ?6bn over the next three years). It is usual at this time of the political cycle to get the bad news (higher personal taxes/lower spending) out of the way, but not for this Chancellor, who perhaps has his own political cycle in mind - that of replacing PM Blair without tainting his own popularity. The market has long been suspicious of Brown’s policies so the impact on GBP has been marginal.
The BRC retail survey released last night showed y/y growth in like-for-like sales hitting the highest level (a still lowly 0.8%) since March when an early Easter boosted sales growth. This is inconsistent with the very weak scenario painted by last week’s CBI survey and will create some market uncertainty about sales going into the key Christmas period.
Australia trade and housing finance data last night failed to excite the market any further, with the AUD currently being supported by gold price strength and as one of the preferred vehicles out of JPY. Tonight’s GDP data will also need to be unusual to move the AUD, while the RBA announcement should be a non-event. Technically, there is still room up towards the 0.7600 level in the short-term, although some corrective activity to 0.7450-70 could be seen initially after recent advances if 0.7500 gives way. Above 0.7530 would suggest a continuation of gains.
The NZD touched resistance at 0.7200 and it is touch and go whether this will hold it ahead of Wednesday night’s RBNZ decision. The NZD has come a long way in recent weeks, against both the USD and the JPY and while the interest rate attractions remain strong, especially against the JPY, there is a risk of some corrective activity. 86.70, 86.40 and 85.85 are all levels which if broken would raise some correction threat on NZD-JPY.
USD-CAD broke below the previous 2005 low at 1.1588 and in doing so also reached its lowest level for almost 14 years. This opens some downside risk in the short-term, as long today’s BoC announcement does not offer any bad news (see below).
Day Ahead Sweden – Q3 GDP is released today and stronger growth is likely compared to recent quarters and this should offer support to the higher rate scenario currently being embraced by the market. EUR-SEK is currency engaged in a real battle around the support area at 9.40-9.43. A downside break is favoured at some point in the weeks ahead.
Norway – GDP data could have an influence on the NOK, although 7.84 will need to break on EUR-NOK to extend the falls seen since Thursday’s peak at 8.0030.
UK – industrial/manufacturing output data is due this morning, while the latest NIESR estimate of GDP is out tonight. There has been some volatility in the energy and utilities categories of industrial output in recent months, although manufacturing itself has been soft. NIESR 3mth/3mth GDP estimates have been either 0.4% or 0.5% in each of the last five months.
Eurozone – German manufacturing orders should show continuing strength, although this is unlikely to alter ECB sentiment for now.
US – unit labour costs will be monitored given its relative importance as an inflation indicator, although the initial estimate was a soft -0.5% annualised rate and this should be revised down even further. Factory orders will also be watched for any major revisions to the ex-transport durables component, the initial estimate of which was released last week.
Canada – a 25bp rate hike seems likely today and the BoC should also signal the likelihood of further rate rises over coming months, even though they will stress the need to monitor a number of factors including economic performance at home and the state of global demand. The message should be CAD supportive.
Diary Data/event BST Consensus* SE GDP (Q3) q/q 08.30 0.9% NO GDP – total (Q3) q/q 09.00 0.7% NO GDP – mainland (Q3) q/q 09.00 0.8% GB Ind prod (Oct) m/m 09.30 0.2% GB Manu output (Oct) m/m 09.30 0.2% DE Manu orders (Oct) m/m 11.00 0.5% US Chain store sls (w/e Dec 3) w/w 12.45 -0.7% last US Productivity (Q3, 2nd est) saar 13.30 4.4% US Unit lab costs (Q3, 2nd est) saar 13.30 -0.7% CA Building permits (Oct) m/m 13.30 -0.5% US Redbook sls (w/e Dec 3) m/m 13.55 0.3% last CA BoC policy announcement 14.00 3.25% US Factory orders (Oct) m/m 15.00 2.1% CA PMI (Oct, nsa) 15.00 63.3 US ABC consumer conf (w/e Dec 4) 22.00 -15 last AU RBA rate announcement 22.30 5.50% GB NIESR GDP (3mths to Nov) q/q 00.01 0.4% last AU GDP (Q3) q/q 00.30 0.5%
Latest data Actual Consensus* GB BRC retail survey (Nov) y/y 0.8% -0.2% last AU Housing finance (Oct) m/m 1.1% 1.5% AU Trade balance (Oct) -A$1.33bn -A$1.45bn JP Overall PCE (Oct) y/y 2.0% 1.8% * Consensus unless stated
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