Monday, October 12, 2009

Investors Pare Back USD Shorts Ahead Of Major Risk Events

A very light data calendar from Europe coupled with the Columbus Day holiday in the US means it is likely we’re in for another day where FX markets drift around in tandem with broader indicators of risk appetite, namely equity indices and commodity prices. Asian equity markets have been mixed since the open with the Hang Seng and Shanghai Composite struggling (Nikkei closed for Japan holiday), but commodity markets have remained supported with gold consolidating just below $1050, silver still elevated at $17.75, and oil holding above $72. The US earnings calendar is very sparse today, with the main US financial names due from Wednesday, however the first few releases from Europe are kicking off this morning, and we expect most to follow the positive start set last week. The few data releases of note this morning have been Swedish Unemployment data and German Wholesale Price Index (Sep); the latter was sharply lower than forecasts at -0.2% MoM (vs. 0.3% expected); affirming the ECB’s view that for now, inflations risks are not a concern. The Swedish unemployment figures showed a slight improvement for Sep (5.3% vs. 5.4% expected), echoing the recent NOK, CAD and AUD labour data that have also shown an encouraging and unexpected improvement in the labour market. The remainder of the week is packed with high-profile risk events including FOMC Minutes, US Retail Sales and Industrial Production, Eurozone CPI, UK CPI and Retail Sales amongst others. With short-USD positions performing so well last week it is unsurprising that we are seeing some profit-taking ahead of the big risk events; the DXY has bounced well off its lows last week, currently trading at 76.60. One of the biggest movers in the majors has been NZDUSD, down a percent at 0.7265 as the USD resurgence reclaims ground and investors pare back risk ahead of tonight’s NZ Retail Sales figures. Consensus estimates are for a 0.5% gain in Aug, but considering its major peers including Australia (0.9% vs. 0.5% exp.), US (2.7% vs. 1.9% exp.) and Eurozone (-0.2% vs. -0.5% exp.) have all convincingly beaten estimates in August, the risks appear to be tilted to the upside in our view.
Forex-Chart

Today's Key Issues (time in GMT):

08:00 SEK Swedish: AMV unemployment rate, % Sep exp: 5.4 prev: 5.4
21:45 NZD NZ: Retail Sales, % m/m Aug exp: 0.5 prev: -0.5
23:01 GBP UK: RICS housing market survey, price balance Sep exp: 15.0 prev: 10.7
23:01 GBP UK: BRC retail sales monitor, total sales, % y/y Sep prev: 2.2

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