1. Markets Consolidate as Traders Await Trichet – The Euro extended its bounce up from the 1.30 area, as we reached as high as 1.3215 in overnight trading. The market is looking for the ECB to announce additional liquidity provisions at its post rate set meeting press conference. The ECB however may not be ready to announce a massive extension of bond purchases, but instead the ECB will continue to provide liquidity through its MFI operations. With these expectations, the market may be disappointed, and Euro’s recent gains could be unwound.
2. Australian Retail Sales Decline, AUD Pressured vs Kiwi – Australian consumers retrenched in October, as sales slid 1.1% during the month. That was a far cry from the 0.4% increase expected, and follows a weak gain of 0.1% in September. Can the Aussie economy be held back by recent worries about China trying to ease its fast pace of growth. Or is this more a response to the higher interest rates in the economy. The AUD while sliding overnight in the wake of the release, did manage to pare a good portion of its original lesson.
3. Equities and Risk Sentiment Remain Positive - Stocks in Asia and Europe were higher around the globe helping higher yielders and commodity currencies against the safe havens. The Nikkei rose 1.8%, ending at a 5-month high , as Japan reacted to the surge on Wall Street. Australia’s S&P/ASX 200 climbed 2%. The global growth story was boosted by strong Chinese and US manufacturing data as well as a positive jobs report from the US. If Trichet can contain the contagion in the European sovereign debt crisis then we can return to some “risk-on” trading to complement the moves in equities the past 2 session.
Key Currency Pairs, Gold and Oil:
Mainly a session of consolidation as markets await news from Trichet.
EUR/USD – Extended our move higher in the pair as we rallied to 1.3215, as we had risk appetite in stocks.
EUR/GBP – We had a second session of Euro strength in this pair and we moved back into a consolidation zone between 0.8420 and 0.85. The recent action gives us some indications that we may have bottomed from the recent downmove, but a lot will depend on ECB Trichet’s conference.
USD/JPY – The USD/JPY is testing its resistance for this week at 84.30 as the NY session goes underway. We are looking for a break of that level to extend the rally in this pair.
AUD/USD, CAD/USD, NZD/USD - While the Aussie was pressured in the Asian session on the back of its data, the USD/CAD pair saw a strong move in favor of the Canadian Dollar. Whie we remain in a range between 1.0080 and 1.0250, the pair is setting up to break below the support of our channel.
Gold and Oil – Gold and oil were close to their open for the session.
