Forex Investment and Currency Trading

CAD
Last night we had choppy overnight session, as stops above 1.2400 were triggered early in Asia, only to see aggressive selling in the London morning take us back down below 1.2300, triggering stops on the downside. We opened the day in North America somewhat in the middle of the range, with the market tentatively selling the USD across the board.

Today in Canada the focus will be on the trade data for September. With energy prices falling and a serious recession in its biggest trading partner, we could see a significant deterioration in Canada’s trade balance over the next few months. There has already been some market chatter about Canada eventually moving into a trade deficit until the US economy and energy prices recover, which we haven’t seen since 1975. Energy prices will definitely be key for the outlook for the trade balance, as the balance exenergy has been in deficit for over a year now.

Majors
Overnight we initially saw a return to risk aversion, helped along by yesterday’s announcement from the US Treasury’s Paulson, weak Chinese industrial production data, and a breakdown in GBP, which fell to its lowest level against the US dollar in 6 ½ years on expectations of further rate cuts in the UK. Asian equities sold off, crude oil prices fell to their lowest level in 22 months, and the USD rose against the other majors. However, we did see signs of stabilization during the London session, with speculation of a 54bps rate cut in China and slightly better than expected Wal-Mart earnings.

Today we get a lot of central bank speak out of both the ECB and the Fed, which could end up garnering more attention than the data. Both Fed speakers today – the Philadelphia Fed’s Plosser at noon and the Minneapolis Fed’s Stern at 2PM – are voters this year, so we’ll be watching especially closely for any indication of how comfortable they may or may not be with further rate cuts as the fed funds rate approaches zero. We’ll also be watching the US trade balance to see how exports hold up in the face of an appreciating US dollar and a serious slowdown in global economic growth. After the ISM
new export orders index fell to its lowest level ever in October, the export sector doesn’t look like it’s going to be able to prop up the US economy any longer, although the real weakness probably isn’t going to be evident until the fourth quarter.

Data

• New Zealand retail sales managed to increase by a measly 0.1% in September, falling short of the markets’ expected 0.4% increase. Excluding automobiles, the “core” retail sales result was down by 0.5%, going against expectations for a 0.4% increase. Stats NZ also released the quarterly ex-inflation result, which declined by 0.9%. Although this was better than the expected 1.2% decline, it suggests that household consumption expenditure will detract from GDP growth in Q308.
• Chinese industrial production was released at a lower than expected 8.2% Y/Y versus
  expectations of 11.1%. This is the lowest reading since February 2005. Japanese wholesale inflation eased in October, with the CGPI falling from 6.8% Y/Y to only 4.8% Y/Y.
• German GDP was much worse than expected in Q3, contracting by 0.5% Q/Q, compared to expectations for a 0.2% contraction. Most of the weakness came from exports, and the downside surprise definitely adds downside risk to Eurozone GDP, out tomorrow morning, where markets are expecting to see a 0.2% contraction.
• Today in Canada we get the international trade data for September, where markets are
  expecting to see the trade surplus fall from $5.8B to $4.8B. Canadian exports are
  expected to take a serious hit from both falling energy prices and a big decline in motor
  vehicle exports, since we already know that auto sales in the US fell off a cliff in
  September and October. And if we see a significant snap-back in imports after last month’s nearly 6% M/M fall, then the trade balance could be even worse than markets are expecting.
• In the US we get the weekly jobless claims data today, as well as the trade balance for September. The US trade deficit is expected to narrow to $57B, with falling oil prices leading to a smaller import bill. Later this afternoon we get the monthly budget statement for October. While this release used to be paid only little attention, as the US fiscal deficit balloons over the coming year, markets will be watching this number more closely. Markets are expecting the budget deficit to expand from $57B in September to $200B in October.