The dollar’s earlier rally of European trade gave away in early NY trade when oil prices rebounded by more than a $1 per barrel towards record territory on supply worries with US heating oil. Concerns that Thursday’s report on US distillate oil stocks would fall by more than 1.0 million barrels per day were mainly behind the rally. Recurring concerns with supplies in Nigeria also served as a catalyst. Metal commodities took a beating as gold tumbled by more than 3%, copper down 8% and nickel plunged 13%. Liquidation by Chinese margin accounts is said to be the culprit. The route in metals did help the dollar, but only until the spike in oil emerged and begun weighing on US stocks. The Dow fell 98 pts below the 10,000 level for the first time in nearly 3 weeks, while the S&P500; shattered the 200 day MA losing 0.4% to 1,111. US Treasuries ocen again exploited the route in US equities, as the 10-year yield hit a 2 ½ week low at 4.07%.

All eyes turn to the trade deficit

Tomorrow’s trade balance figure from the US is expected to show another above $50 billion deficit in August, highlighting the US external imbalance, which could renew the dollar’s damage. The July deficit fell 9% to $50.15 billion after a record high $55 in June, posting only the second decline in 8 months. The 9% drop in the trade gap was mainly a result of the 9% decline in oil imports. The August data from the US energy authorities shows no significant increase in oil imports volumes. But the soaring prices of oil may have been instrumental in driving up the oil import bill and pushing up the deficit to new highs. We expect a figure under $50 billion to be dollar positive but anything above $53 billion should weigh on the currency. A figure in between may have little directional impact on the currency.

Euro swings as commodities run the show

The euro’s initial 1.2 cent tumble to $1.2225 following gold’s sell-off stabilized as oil prices bounced back up, pushing the single currency back to the $1.2350s. Dollar shorts unwound their positions ahead of tonight’s presidential debate and tomorrow’s key US trade report. A trade deficit above the $53 billion mark could push the euro back beyond the $1.24 figure.

Resistance stands at $1.2380 followed by $1.2450-55. Key resistance remains at $1.2480—the 61.8% retracement of the said $1.2926-1.1759 decline. Subsequent target stands at $1.2520. Support starts at $1.2310, followed by the solid 200-day MA of $1.2250. Subsequent targets seen at $1.2215—the 38% retracement of the said move. Key foundation remains at $1.2170-80—the trend line support extending from the 98.59 low thru the 1.0761 low.

USDJPY unhinged as Fukui seeks to reassure

USDJPY drifted between the 100 and 200 day moving averages of 110.12 and 109.08 respectively after the Ban of Japan kept the amount of liquidity in the system unchanged at 30-35 trillion yen available to commercial banks. BoJ Chief Fukui sought to alleviate concerns about the increasingly cloudy economic outlook in Japan by referring to "maintaining easing measures”, as a way “to escape from deflationary conditions". Traders are increasingly concerned about the protracted rise in oil and its negative impact on Japan’s oil-dependent economy. Meanwhile, the Nikkei-225 index posted its second daily drop on Wednesday, touching the 200—day MA.

Support starts at 109.12--the 50% retracement of the 114.86-103.50 drop. Next target comes up at the 200 day MA of 109. A breach below 108.70 (Aug low) sees key support at 108.20. Upside starts at the 100-day MA at 109.90. Subsequent resistance stands at 110.50—the 38% retracement of the 114.86-103.50 decline.

Cable rides along the commodities route

Once again sterling was saved by external factors, this time thanks to sharp bounce in oil. The currency shunned a strong employment report which showed the claimant count of unemployed falling by 200 to 834,000 in September, its lowest level since July 1975. The unemployment rate was in line with expectations at 2.7%, while average earnings were up 3.9%, better than estimates of a rise to 3.8%.

Initial resistance remains at $1.8050—the trend line resistance extending from the Jul 19 high of $1.8769 thru the Sep 28 high of $1.8160. Next target seen at $1.8110—the 38% retracement of the fall from the $1.8769 high to the $1.7706 low. A breach above $1.8150, sees resistance at $1.82—the 200 day MA. Support starts at $1.7850, backed by 1.7820—the trend line support from the $1.5608 low thru the 1.7926 low.

Loonie mulls Canadian trade balance

The loonie could regain its winning ways ahead of tomorrow’s Canadian trade report expected to show the merchandise surplus to have edged up to C$6.8 billion in August from C$6.2 billion in July. The release is at the same time as that of the US trade figures. USDCAD quietly lurks towards the 1.25 figure, facing support at 1.2465-70 followed by 1.2430 and 1.24. Upside stands at 1.2570 followed by 1.2620.

No Key Data

Currencies were little changed in overnight trading, with the dollar maintaining its buoyant tone against the majors. Gains in both the euro and sterling were capped at 1.2340 and 1.7934, respectively. The key data isn’t slated for release until the latter part of the week, in which the calendar includes US jobless claims, trade deficit, PPI, retail sales, industrial production, and University of Michigan sentiment survey.

Cable Unchanged on Jobs Data

The UK unemployment report was slightly better than expected, with the September claimant count besting forecasts of –5.0k, instead coming in at –200. The unemployment rate was in line with forecasts, standing pat at 2.7%. Average earnings were up 3.9%, better than estimates of a rise to 3.8%. The ILO jobless was –51k in the 3-months to August, with the jobless rate standing at a record low of 4.7%. The ILO employment component rose 10k to 28.39 mln in the 3-months to August.

The Bank of England’s Mervyn King said that there weren’t many UK inflationary pressures at the present, noting that within the past few months there have been clear signs of slowing in UK housing market.

Cable traded within a narrow range between 1.79 and 1.7935. Support is seen at 1.79, followed by 1.7865, followed by 1.7820 and 1.78. Subsequent floors are seen at 1.7760, followed by 1.7740 and 1.77. Gains will target interim resistance at 1.7930, followed by 1.7950 and 1.80. A move higher will target 1.8040, followed by 1.8065 and 1.81.

Euro Recovers Slightly

ECB Governing Board member Guy Quaden said that there was no immediate need to react to external shocks such as oil if increases in wage remain moderate. He said it was particularly important that wages and fiscal policy don’t try and balance the rise in oil prices.

The euro bounced above the 1.23-figure overnight, with resistance starting at 1.2360, followed by 1.2380 and 1.24. Additional resistance is seen at 1.2430 and 1.2460 and 1.25. Support beneath 1.23 will start at 1.2280, backed by 1.2250 and 1.22. Subsequent floors are eyed at 1.2170, backed by 1.2140 and 1.21.

Dollar/Yen Inches Higher

The Bank of Japan, as expected, left monetary policy unchanged when it announced its decision earlier in the session. The BoJ left the current account deposits target at 30-35 trillion yen, saying it would provide funds regardless of target if risks to financial system stability emerge. The BoJ said the decision was unanimous. Also, in the Bank’s monthly report, it maintained its view that Japan’s economy was continuing to recover. The BoJ did reiterate the need to closely watch the economic impact of rising oil prices.

Japan’s August industrial output was revised down to 0.1%, versus the preliminary 0.3%. Capacity utilization index was also downwardly revised to 0.4%, from 0.5% n July.

Dollar/yen edged up higher, rising to 109.94. Interim resistance starts at 110, followed by 110.30 and 110.60. Subsequent ceilings will emerge at 111, followed by 111.50 and 112. Support begins at 109.30 and 109. Additional floors are eyed at 108.70, backed by 108.30 and 108.

USDCAD

Dollar/Cad remained buoyed overnight, rising to a high of 1.2645. Interim resistance begins at 1.2660, followed by 1.2680 and 1.27. Subsequent ceilings are seen at 1.2740, backed by 1.2770 and 1.28. Losses will support at 1.2570, backed by 1.2540 and 1.25. Additional floors are eyed at 1.2480, followed by 1.2430 and 1.24.

USDCHF

Dollar/Swiss drifted lower, holding steady near its lows around 1.2650. Support is eyed at 1.2540, backed by 1.2510 and 1.2450. Subsequent floors will emerge at 1.2370 and 1.23. Resistance is seen at 1.27, followed by 1.2750 and 1.28. Further ceilings are seen at 1.2860, backed by 1.2920 and 1.30.

At 4:30 AM UK September Unemployment Rate (exp 2.7%, prev 2.7%) UK September Average Earnings 3-month y/y (exp 3.8%, prev 3.8%) UK September Change in Unemployment (exp –5.0k, prev –6.1k)

The greenback relinquished some of yesterday’s gains against the majors, sliding to 1.2230 versus the euro and 1.7925 against the sterling. In the coming session, key data traders will look closely at will be UK unemployment, slated for release at 4:30 AM EST.

USDJPY Revisits 110

The Bank of Japan, as expected, left monetary policy unchanged when it announced its decision earlier in the session. The BoJ left the current account deposits target at 30-35 trillion yen, saying it would provide funds regardless of target if risks to financial system stability emerge. The BoJ said the decision was unanimous. Also, in the Bank’s monthly report, it maintained its view that Japan’s economy was continuing to recover. The BoJ did reiterate the need to closely watch the economic impact of rising oil prices.

Japan’s August industrial output was revised down to 0.1%, versus the preliminary 0.3%. Capacity utilization index was also downwardly revised to 0.4%, from 0.5% n July.

Dollar/yen edged up higher, rising to 109.94. Interim resistance starts at 110, followed by 110.30 and 110.60. Subsequent ceilings will emerge at 111, followed by 111.50 and 112. Support begins at 109.30 and 109. Additional floors are eyed at 108.70, backed by 108.30 and 108.

Cable Steady Above 1.79

Traders will look ahead to UK jobs data, due out at 4:30 AM EST. Markets are expecting the unemployment rate for September to remain unchanged at 2.7%, while the change in employment is seen dropping another 5k, following last month’s 6.1k decline.

Support is seen at 1.79, followed by 1.7865, followed by 1.7820 and 1.78. Subsequent floors are seen at 1.7760, followed by 1.7740 and 1.77. Gains will target interim resistance at 1.7930, followed by 1.7950 and 1.80. A move higher will target 1.8040, followed by 1.8065 and 1.81.

Euro Edges Up

The euro bounced above the 1.23-figure, with resistance starting at 1.2360, followed by 1.2380 and 1.24. Additional resistance is seen at 1.2430 and 1.2460 and 1.25. Support beneath 1.23 will start at 1.2280, backed by 1.2250 and 1.22. Subsequent floors are eyed at 1.2170, backed by 1.2140 and 1.21.

The dollar accumulated fresh gains after bigger expected declines in Germany’s economic sentiment survey and the UK’s rate of inflation. Germany’s ZEW survey hit a 16-month low at 31.3 while Britain’s inflation rate slowed to 1.1%, the lowest in 6 months. The data diminish the possibilities of rate hikes in Western Europe, thereby supporting the dollar. Oil prices remained on their record breaking ways with US crude hitting $54 per barrel with no signs of a Nigeria’s strikes abating any time soon. Meanwhile, US treasuries rallied across the board, paring recent losses, as 10-year yields hit a 1 ½ week low at 4.10%.

The passing of the Homeland Investment Act by Congress yesterday also boosted the dollar on expectations that new law will encourage US firms to repatriate their earnings. The act cuts tax on MNC’s profits to 5.25% from 35% for one year. Estimates put the expected amount of inflows at anywhere between $100 bln and $200bln. Last year, businesses added just over $119 billion to their undistributed foreign earnings, or 75% of profits earned abroad, according to the Commerce Department's Bureau of Economic Analysis. Nonetheless, the long-term effect on the dollar remains in doubt especially when considering hedging considerations.

Euro pares Friday’s gains

The newly passed Homeland Investment Act encouraging US multinationals in repatriating their profits and a disappointing ZEW Economic Sentiment survey from Germany were behind the euro’s 1-cent tumble. The ZEW indicator fell 7.1 points in October to 31.3 points, hitting its lowest level since June 2003 and falling below its historical average of 34.7. ZEW economists attributed eroding sentiment to escalating oil prices, slowing export growth and flat domestic demand. In the event the September’s IFO survey turns out just as bleak, expectations of an ECB rate hike will wane.

Interim support seen standing at $1.2310, followed by the solid 200-day MA of $1.2250. Subsequent targets seen at $1.2215—the 38% retracement of the said move. Key foundation remains at $1.2170-80—the trend line support extending from the 98.59 low thru the 1.0761 low. Upside starting at the $1.2350 target-- the 50% retracement of the said $1.2926-1.1759 decline. Follow up resistance at 1.2380 and $1.2450-55. Key resistance remains at $1.2480—the 61.8% retracement of the said move.

CPI hurts GBP, King leaves hope

Sterling began its declines in early European trade when players unwound dollar shorts following passing of the Homeland Investment Act. Losses deepened when CPI hit a 6-month low in September at 1.1% from 1.3%.

But just when traders began to eliminate chances for a BoE rate hike this autumn, Bank of England Governor Mervyn King cautioned that the drop in the pound sterling and the "continuing rapid expansion of total money spending, broad money and credit" could be inflationary. Mr. King did acknowledge that the increasing signs that the UK economy is growing more slowly than was predicted two months ago. Yet the combination of a weaker
pound and rising oil could allow the door another tightening.

Initial resistance seen at $1.8050—the trend line resistance extending from the $1.8769 high thru the $1.8160 high. Next target seen at $1.8110—the 38% retracement of the fall from the $1.8769 high to the $1.7706 low. A breach above 1.8150, sees resistance at $1.82—the 200 day MA. Support seen at 1.7850, backed by 1.7820—the trend line support from the $1.5608 low thru the 1.7926 low.

USDJPY tapers at 110

USDJPY hovered between the 100 and 200 day moving averages of 110.12 and 109.08 respectively. Traders await this evening’s trade figures from the Japan expected to show the deficit falling to 932 bln yen from 1.38 trln yen. Recall last month’s release led to an unexpected decline in exports driving the yen lower.

Support starts at 109.12--the 50% retracement of the 114.86-103.50 drop. Next target comes up at the 200 day MA of 109. A breach below 108.70 (Aug low) sees key support at 108.20. Upside starts at the 100-day MA at 109.90. Subsequent resistance stands at 110.50—the 38% retarcement of the 114.86-103.50 decline.

Traders mull Aussie’s retracement

Aussie’s post 6-month high retreat test the 200-day MA of 72.83, below which comes in at
72.43—38% retracement of the 80.02-68.13 move. 72.25-30 is seen as the 4-week trend line support to be followed by 71.20—the 50% retracement of the rise from the Sep 9 low. Upside starts at 73.50 and 73.86--61.8% retracement of 80.02-68.13 move.

No Key Data

The greenback climbed up higher overnight against the majors, recovering back toward pre jobs data levels. The dollar pushed the euro lower to the 1.23-figure and 1.7849 versus the sterling. Traders attributed the overnight gains to speculation on the passing of the Homeland Investment Act, which would likely result greater repatriation of overseas profits among US multi-nationals.

Separately, markets continue to keep a close eye on rising oil prices, which breached another record level overnight at $53.80 per barrel. The International Energy Agency raised its world oil demand forecast by 190,000 barrel per day to 2.71 MBPD. However, the IEA slashed 2005 global oil demand by 320,000 bpd to 1.45 MBPD, attributing the cut to expectations of slower economic growth and the impact of high oil prices on demand and the economy.

Sterling Slumps on CPI

Markets sold off on the sterling following a weaker than expected UK inflation report, which gives the BoE further scope to maintain rates at current levels. The UK September CPI rose 0.1% m/m and 1.1% y/y, undershooting estimates for a rise of 0.4% m/m, 1.4% y/y. The ONS said the largest downward effect stemmed from airfares, but many other sections also pushed CPI down.

Cable slipped through the 1.79-mark dropping in London to 1.7849. The pair has since recouped slightly, clawing back to 1.7880. Resistance is seen at 1.79, followed by 1.7930, and 1.7950. Subsequent ceilings are seen at 1.80, backed by 1.8040 and 1.8065. Meanwhile, losses will target 1.7850, followed by 1.7820 and 1.78. Additional floors are seen at 1.7760, followed by 1.7740 and 1.77.


Euro Retraces

The euro retraced nearly all of its post US jobs data move, dropping back toward the 1.23-level. Providing additional impetus for the decline was another bout of weak German ZEW survey, which fell to 31.3, shy of the 36.5 forecast. Meanwhile, current conditions improved to –58.9, versus –60.0 forecasts. The ZEW institute said, “the reason for greater pessimism can be found in the continuing surge in oil prices and expectations that global economic dynamism is easing.”

The euro dropped to the 1.23-figure, with support seen at 1.2280, backed by 1.2250 and 1.22. Subsequent floors are eyed at 1.2170, backed by 1.2140 and 1.21. Resistance is seen at 1.2360, followed by 1.2380 and 1.24. Additional resistance is seen at 1.2430 and 1.2460 and 1.25.

USDCAD Slips Ahead of Canadian Jobs

Dollar/Cad trades around 1.26, with interim resistance seen at 1.2640, followed by 1.2665 and 1.27. Subsequent ceilings are seen at 1.2740, backed by 1.2770 and 1.28. Losses will support at 1.2570, backed by 1.2540 and 1.25. Additional floors are eyed at 1.2480, followed by 1.2430 and 1.24.

Yen Drifts Lower on Oil

The yen traded lower versus the dollar, slipping to 109.80 amid a surge in oil prices. The Nikkei also slumped lower, dropping 147.54-pts to 11,201. Japan FinMin Tangaki reiterated concern over oil prices, acknowledging that the rising price of oil may hurt the global economy and that the government will continue to monitor it closely.

Dollar/yen edged up higher, rising to 109.90. Interim resistance starts at 110, followed by 110.30 and 110.60. Subsequent ceilings will emerge at 111, followed by 111.50 and 112. Support begins at 109.30 and 109. Additional floors are eyed at 108.70, backed by 108.30 and 108.

USDCHF

Dollar/Swiss traded just beneath the 1.26-mark. Gains in the pair will face interim resistance at 1.2640, followed by 1.2720 and 1.28. Subsequent ceilings are seen at 1.2860, followed by 1.2920 and 1.30.Support is seen at 1.2570 and 1.2510. Additional losses will target 1.2450 and 1.2370.

At 4:30 AM UK September CPI y/y (exp 1.4%, prev 1.3%) At 5:00 AM Germany October ZEW economic sentiment survey (exp 36.5, prev 38.4) Germany October ZEW current conditions survey (exp –60.0, prev –61.5)

The dollar edged up in Tuesday trading, posting its most significant gains against the sterling to 1.7913, and pushing the yen lower to 109.80. Traders will return to their desks today with fresh record high oil prices just shy of the $54 per barrel mark. Continued strength in oil will likely maintain pressure on the Japanese currency.

Yen Drifts Lower on Oil

The yen traded lower versus the dollar, slipping to 109.80 amid a surge in oil prices. The Nikkei also slumped lower, dropping 147.54-pts to 11,201. Japan FinMin Tangaki reiterated concern over oil prices, acknowledging that the rising price of oil may hurt the global economy and that the government will continue to monitor it closely.

Dollar/yen edged up higher, rising to 109.80. Interim resistance starts at 110, followed by 110.30 and 110.60. Subsequent ceilings will emerge at 111, followed by 111.50 and 112. Support begins at 109.30 and 109. Additional floors are eyed at 108.70, backed by 108.30 and 108.

Euro Retreats

The euro retreated further away from the 1.24-level as profit taking from last week’s jobs data ensued. The coming session will see Germany’s October ZEW sentiment survey, expected to drop to 36 in October from 38.4. The September figure was the lowest in 14 months, suggesting continuous weakening in sentiment in the Eurozone’s largest economy. ZEW economists pointed out last month that the figure remained well above the historical average of 34.8 points. Although most traders have long reiterated the positive currency impact of higher oil via inflation, we expect the contractionary impact of oil on growth to start weighing on the currency.

Euro drifted lower to 1.2335 just ahead of the European session. Support is seen at 1.2330, backed by 1.23 and 1.2280. Subsequent floors are eyed at 1.2250 and 1.22. Resistance is seen at 1.2360, followed by 1.24 and 1.2420. A move higher will target key resistance at 1.2460, backed by 1.25 and 1.2540.

Cable

Cable dropped lower, falling to 1.7915 ahead of UK’s CPI data. Support is seen at 1.79, followed by 1.7865, followed by 1.7820 and 1.78. Subsequent floors are seen at 1.7760, followed by 1.7740 and 1.77. Gains will target interim resistance at 1.7930, followed by 1.7950 and 1.80. A move higher will target 1.8040, followed by 1.8065 and 1.81.