Forex Market Review And News Calendar For October 29 ~ November 2, 2012

The focus of this past week was on the October FOMC Statement and the U.S. Advanced GDP, with the former offering very little change to the current monetary policy and the latter showing a strong reading to the tune of 2.0%, which is another positive surprise from the forecast of 1.8%, or 0.5% more growth compared to the final Q2 reading of +1.5%. Some analysts were too quick to point out that the surprise Q3 reading is largely attributed to government spending as consumer spending component actually came in below forecast…  Although risk sentiment remained high prior to the release as speculators took positions ahead of the release…

With the FOMC still committed to QE3 and the fact that there were very little change to the October statement, plus a slight upgrade in the following section:

Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has advanced a bit more quickly, but growth in business fixed investment has slowed

I believe that this means good news for risk appetite as US economic recovery is pickup traction, but not enough to really affect the Fed’s view of more stimulus until at least 2014… All in all, market should have no reason to be buying the USD, unless we get negative developments in other parts of the world…

In China, the NDRC (China National Development and Reform Commission) was said to be preparing for a fresh rounds of fiscal measures immediately after the leadership transition next month. This is inline with the views of the majority of analysts, as China has been in a holding pattern since the last benchmark rate cuts in July…

In Japan, the cabinet approved a ¥750B stimulus spending package from central and regional governments. The USD/JPY pair reached the highest point for the week prior to the announcement as Japanese government used the press to intentionally “leak” the news ahead.  Verbal intervention from BOJ Shirakawa and Economic Minister Maehara also helped to push JPY weaker, although market did retrace towards the end of the week after a slew of weaker earning report surprises hit the market by Friday…

In Europe, the EUR/USD remains well within the range established since mid September, with the upper end of the range just below the 1.3100 handle and the lower end at just below the 1.2900, or a 200 pips range. Notable news out of Europe includes the ever stubborn Spain holding out yet another week, although its unemployment rate just hit record high of 25%; Moody’s downgraded the ratings on five of Spain’s autonomous regions and reaffirmed five others ; Spain approved liquidity loans for two of its regions; Greece continued its negotiation with Troika, it is still too early to say whether or not Greece will get the next tranche of payment, although there were unsubstantiated reports flying all week long that Germany has already agreed to give Greece a two-year extension… Of course, we’ll still be watching new developments out of Europe closely…

In conclusion, I still recommend to BUY EUR on dips, especially considering that market has already priced in the worst case scenario with the Euro, to the point that even if we were to see a Greece exit, the risks to the downside will be contained…  USD is a hold or sell play for the week, considering that the Feds are not likely to change their tone, we should see USD remaining relatively unchanged.  GBP is definitely a buy on dips, especially after the huge GDP surprise which brought the year to date UK economy from recession to flat.  Although it may still take several years for UK to recover, I like what I’m seeing now with GBP.  JPY is likely to weaken, so definitely sell on rallies.  With BOJ likely to announce new stimulus on the 30th, there is no reason to go long on JPY.  CHF is likely to follow EUR, but after the strengthening all the way down to the 0.9200 against the USD, it may consolidate, but the direction is still buy on dips, or SELL USDCHF on rallies.  CAD, NZD, and AUD are likely to follow risk trend, with USD remaining neutral, I would definitely pay attention to the NFP on Friday then decide what to do with these commodity currencies… I’m more inclined to buy on dips, with the exception of AUD since RBA could cut rates during the next rate decision, so I’ll be careful with AUD.

Here’s the list of tradable releases for the week:

  1. Wed October 31, 2012 – 8:30am EST – CA GDP m/m
  2. Thu November 1, 2012 – 5:28am EST – UK Manufacturing PMI
  3. Thu November 1, 2012 – 8:15am EST – US ADP NFP Employment
  4. Thu November 1, 2012 – 10:00am EST – US ISM Manufacturing PMI
  5. Fri November 2, 2012 – 8:30am EST – CA Employment Change
  6. Fri November 2, 2102 – 8:30am EST – US Nonfarm Payroll

Thank you,