- USD: Lower, ADP job losses slowed for the eighth consecutive month, the decline was less than expected
- JPY: Lower, Japan's PM says JPY strength must be dealt with, BOJ pledged to provide ample liquidity
- EUR: Lower, EU CPI rises, IMF says EUR strong versus USD, focus turns to Thursday's ECB meeting
- GBP: Higher, construction PMI improves, BOE's Dale warns of possible spike in UK inflation
- CAD and AUD: AUD & CAD higher, RBA rates to rise in 2010, Canada outlines an exit strategy from stimulus
Overview
USD traded mixed Wednesday with JPY pressured by threat of intervention and GBP supported by hawkish comments from the BOE's Chief Economist Dale. Japan's PM Hatoyama, says that JPY strength must be dealt with. His comments increase the risk of intervention and sparked liquidation selling of JPY. JPY was also pressured by falling Japanese yields as the BOJ pledged to provide ample liquidity. BOE's Dale says the UK economy has turned and warned that UK inflation may begin to rise sharply. Dale's comments may dampen speculation that the BOE will expand its asset purchase plan. The rest of the major currencies were mixed with the commodity currencies supported by another record rise in the price of gold. USD is expected to remain range bound as the market awaits Thursday's ECB policy decision and Friday's release of US November Unemployment and nonfarm payrolls. The ECB is expected to hold rate policy unchanged at 1% and outline the details of its exit strategy from nonconventional policy measures. The pace of US job losses continues to slow. Challenger Gray reports that US job cuts fell for the fourth consecutive month to a two-year low. ADP employment for November dropped for the eight consecutive month. The ADP report had little impact on today's FX trade. US unemployment is expected to remain at elevated levels but the pace of nonfarm payroll losses likely continued to slow last month. The ADP report suggests that US November nfp will be around -125k.
Today's US data:
November ADP drops by -169k, a reading of -160k was expected. This marks the eighth straight monthly drop in ADP employment losses. Upcoming US data:
On December 3rd initial jobless claims for week ending 11/28 will be released expected at 480k compared to 466K last month along with Q3 final productivity and unit labor costs. Productivity is expected at 8.9% and unit labor costs expected -4.7%. November ISM nonmanufacturing index will be released on December 3rd as well expected 51 compared to 50.6 last month. November nonfarm payrolls and unemployment will be released on December 4th with the unemployment rate expected unchanged at 10.2% and nonfarm payrolls expected -135k compared to 190k last month. October factory orders will be released on December 4th expected at 0.2% compared to 0.9% last month. JPY
JPY traded lower pressured by threat of intervention and BOJ ease. Japan's PM says that JPY strength must be dealt with and the JPY rise can't be left as it is. Tuesday, the BOJ announced that it will expand its funding operations by ¥10trln. The expansion of BOJ funding operations is to combat deflationary pressures in Japan and slow the JPY rise. BOJ officials reiterated a pledge to continue to provide liquidity to the Japanese markets. Threat of intervention and continued liquidity measures from the BOJ sparked liquidation pressures in the JPY. The BOJ has been under significant pressure from the new Japanese government to take actions to boost the Japanese economy, fight deflation and to help limit JPY gains. BOJ Governor Shirakawa said that the BOJ was not urged by the Japanese government to take additional monetary easing steps. BOJ's Suda said that the BOJ will not rule out any policy options and noted the risk of a deflationary spiral in Japan and that the recent strength of the JPY could add to deflationary pressure. Suda's comments suggest that the BOJ and the Japanese government are moving closer to shared views about the outlook for the Japanese economy. Last week the BOJ upgraded its outlook for Japan's economy and soon after the Japanese government said that the Japanese economy was back in deflation. Verbal intervention is unlikely to have lasting impact on JPY strength and so far the new BOJ liquidity measures are modest. This suggests that today's weakness in the JPY will likely be short-lived. Key technical levels to watch in USD/JPY include support at 86.15 the December 1st low with resistance at 88.65 the November 25th high. 
EUR
EUR traded mixed to lower as the global equity market rally slows and the EU posts are modest rise in October PPI. EU October PPI rose by 0.2%, a flat reading was expected. The PPI rise reflects higher energy prices. The annual EU PPI rate declined by 6.7% compared to 7.6% in September. The PPI data suggest that inflation pressures in the EU remain in check. Today's EU PPI report is unlikely to alter the outlook for a steady ECB policy decision at Thursday's meeting. EUR gains were limited by selling in cross trade to the GBP with GBP supported by report of improving UK construction PMI and hawkish comments about UK inflation outlook from the BOE Chief Economist Dale. This week's main focus will be the ECB policy meeting Thursday. The ECB is expected to leave interest rate policy unchanged at 1% and outline details of its exit strategy. Monday, the EU reported that CPI rose for the first time in seven months. The rise in EU CPI coupled with improving EU PMI data may encourage the ECB to shift to a slightly more hawkish bias in its monetary policy outlook. Continued high EU unemployment will likely constrain the ECB from aggressive monetary policy tightening anytime soon. EUR drifted lower after the release of US November ADP employment report which confirms that the pace of US job cuts has slowed. EUR gains were also limited by a statement from the IMF's Belka that the EUR is on the strong side versus the USD (overvalued).
The technical outlook for the EUR is positive as the EUR trades above 1.5000. Expect EUR support at 1.4965 the November 30th low with resistance at 1.5145 the November 25th high. 
GBP
GBP traded higher supported by report of improving UK construction PMI and hawkish comments from the BOE Chief Economist Dale. UK November construction PMI improved to 47 from 46.2 last month. The BOE's Dale said that the UK economy appears to have turned the corner and that he sees the risk of a spike in UK inflation. Dale said that the UK economy is moving into a period of expansion and that the BOE at some point may have to explain why inflation is rising quickly. His comments suggest that the BOE may be less inclined to expand its asset purchase program at next weeks BOE policy meeting. Dale appears to be concerned about the risk that the BOE's asset purchase plan and record low interest rates may be creating asset bubbles. The BOE policy meeting next week is the key event risk for GBP trade. The BOE is expected to hold monetary policy unchanged and the level of its asset purchases unchanged at £200bln. If the BOE elects to maintain the current level of asset purchases it would be a modest positive for the GBP.
The technical outlook for GBP is mixed as GBP trades rallies above 1.6500. Expect near-term support at 1.6357 the November 27th low with resistance at 1.6845 the November 18th high. 
CAD
CAD traded mixed despite a new record high in the price of gold and the announcement of Canada's exit plan from stimulus and to reduce its deficits. The latest catalyst for the record rise in the price of gold appears to be the BOJ's plan to boost liquidity. Wednesday, Canada reported that its 2009-10 budget deficit would be a record CAD55.9bln. The Canadian government pledged to cut the deficit in half over the next two years by winding down economic stimulus. Over the past 10 years Canada has had budget and trade surpluses but Canada fell into deficit last year as the Canadian government enacted economic stimulus plans to try to combat the impact of the global recession. There were no major Canadian economic reports today. CAD drifted lower as crude prices dip in reaction to the announcement that Iran had released the captured British sailors. CAD was supported at the start of the week by the release of Canada's Q3 GDP which confirms that the Canadian economy is emerging from recession. Canada's Q3 GDP rose by 0.4% with exports reported to have risen by 3.6% q/q. Canadian exports are higher despite strength in the CAD. The quarterly export sales rise may help reduce some of the threat of BOC intervention. Canadian officials have expressed concern that the strength of the CAD could choke off the Canadian recovery. Canada's Finance Minister Flaherty said that Canada does not need to take special measures to curb the rise of the CAD that were taken by Japan to try to curb the JPY rise. CAD direction remains closely correlated to the price of commodities and risk sentiment.
On December 4th November Ivey PMI will be released expected at 60 compared to 61.2 last month along with November employment. The November unemployment rate is expected to rise to 8.7 from 8.6% of jobs created at 15k. The technical outlook for CAD has improved as USD/CAD trades below 1.0600. Look for near-term support at 1.0380 the October 21st low with resistance at 1.0780 the November 9th high. 
AUD
AUD traded higher supported by gains in cross trade to the JPY and in reaction to speculation that Australia's interest rates will continue to rise in 2010. AUD/JPY traded about 1% higher with the JPY pressured by threat of intervention and monetary policy ease by the BOJ. Tuesday, the RBA elected to hike rates 25 bps to 3.75%.The RBA said that Australia's 2010 growth should be close to trend and inflation close to target. Wednesday, RBA watcher McCrann says that he expects Australian interest rates continue to rise in 2010. McCrannn's rate comments sparked demand for the AUD. AUD gains were limited by a decline in crude oil prices and mixed equity market trade. In addition there are some analysts expressing concern that the recent RBA rate hikes may begin to choke off economic recovery in Australia. Tuesday Australia reported weaker than expected building approvals and a modest drop in November PMI. Focus turns to Thursday's release of Australia's retail sales. The retail sales report should give a better read about consumer demand in Australia and whether RBA rate hikes are impacting Australia's domestic economy.
On December 3rd October retail trade will be released expected at 0.6% compared to -0.2% last month. The technical outlook for the AUD is positive as the AUD rises to above 9000. Expect AUD support at 9185 with resistance at 9325 the November 26th high and 9400. 
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