[cppene]

United States
Event risk: Sep retail sales (Wed) and industrial production (Fri) will be heavily depressed by the passing of the cash for clunkers program. Core retailing though could be surprisingly robust if the strong uptick in Redbook chain store sales is anything to go by. Oct Empire and Philly surveys (Thur) at risk of a setback given the negative leads from business surveys conducted late in Sep such as the Richmond, Chicago and ISM surveys. Risk aversion might flare up next week. Sell the DXY into any strength. The odd pocket of weaker data is not a fatal body blow to the strong near term recovery story given past strength in various leading indicators has barely begun to show up in activity. In any case earnings might trump the data. Estimates for Q3 S&P EPS growth of -22% (vs -28% in the last qtr) is not unduly aggressive. Beyond that, asset markets are not yet configured in favour of the USD - falling bond yields and base metals have a history of signalling weaker equities and a higher USD but credit remains on a tear so the overall picture is not ripe for sustained USD gains. European/Japanese officials will try to stymie USD weakness with intensive jawboning nearer key levels at 85.0 and 1.50 but they are fighting bigger structural USD negatives (i.e. exceptionally easy US fiscal and monetary policy). Reports of a “cabal” of nations planning to shun the USD in pricing oil are badly misinformed but nevertheless add to the sense of demise that is washing over the USD now.

Canada
Event risk: Manufacturing sales (Thur) the only notable release - some risk of slippage in the wake of last month’s 5.5% rise. Bias: Some negative CAD view is softened in light of some very encouraging data lately including a surge in StatCan’s leading index for GDP and exceptional strength in the IVEY PMI (beyond the seasonals) and building permits. If sustained into early 2010 the BoC might jettison its commitment to maintain low rates through mid-2010. Still favour AUD/CAD topside though given the bull case for AUD is just that much more compelling. Favoured crosses for expressing new found interest include CAD longs vs GBP and CHF.

Europe
Event risk: This week in Euroland the main event risks - BoE and ECB - have passed. The data upcoming are anticipated to be mixed. Eurozone, German, and Switzerland ZEW for October will show varying outturns, while the market will be watching EZ new car registrations, Swedish AMV unemployment and Swiss retail sales for negative outturns. The DXY has failed to break through the recent lows, and until it does there is a risk of a short term pull back. The market is slowly buying euros from a low base. GBPUSD outlook remains bearish over the medium term after GBPUSD failed to push through 1.7000 but with the market already so short of sterling, the downside is limited.

Australia
Event risk: Next week there are some important data events, with the NAB business survey out on Tues and this is followed on Wed by the Westpac-MI consumer sentiment number. More emphasis is likely to be placed on the consumer sentiment number with the survey for this release conducted through the course of this week, hence we can gauge consumers’ reaction to the rate rise, whereas the NAB survey was conducted at the end of September. On Thurs the main focus will be a speech by RBA Governor Stevens but also note we get RBA FX transactions data for Sep. Market bias remains for further AUD strength from here, traders' target of 0.9200¢ is reached sooner rather than later. For instance the DXY index looks set to test below the 76.00 level, which may prompt a fresh wave of USD selling. Given the RBA is the first major central bank to begin raising rates, the A$ is in a good position to benefit from further USD weakness. On crosses the A$ should also outperform.

New Zealand
Event risk: A bullish week of data is in store. Most important will be retail sales (Tuesday), which is expected to be slightly improved based on recent electronic spending reports. CPI (Thursday) should be well within the RBNZ’s 1-3% policy band, and not trouble the markets. Second-tier releases for credit card spending, food prices, house prices, and PMI will likely paint a picture of an economy rebounding steeply from a low base. The current leg of the move, since July, has been uninterrupted, and some wonder for how much longer it can be sustained without at least a shallow correction. Still, fundamentals (data pointing to a sharp rebound, monetary policy expected to converge with Australia’s) and flow/positioning (the NZD is not yet widely owned) support further gains, and there is no technical evidence a reversal is imminent.

Japan
Event risk: The next week is reasonably quiet from a data point of view in Japan. Tomorrow we get machine tool orders, which are expected to show a further improvement from the trough point seen earlier this year. Next week sees money supply data out on Tues, followed by the BoJ decision, consumer confidence corporate prices on Wed. It’s unlikely the BoJ decision will cause too many ripples throughout financial markets. On Thurs the BoJ monthly report and IP and capacity utilisation revisions round out the week. Last week saw a strong net selling of foreign bonds by Japanese investors. This is likely to have reflected repatriation flows into the fiscal half year end. Despite the large scale of these inflows traders still expect outflows will pick up as we progress through October. In turn this should lend some support to USD/JPY and more so yen crosses. What prevents from going long USD/JPY here is the continued weakness in the broad USD trend, with the DXY index likely to test the 76.00 level over coming sessions. This could see a final push lower in USD/JPY into the 85/87 region.

North Asia
Event risk: China’s markets finally reopen, with some catching up to do vs regional equity markets. It would be nice to think CNY also has some catching up to do amid broad USD decline but we won’t hold our breath. The Bank of Korea should keep the base rate at 2.0% on Friday but there will be nerves given the BOK’s record of erring on the hawkish side, even at the risk of upsetting the MOSF. On the data front, we will see China’s Sep trade data on Wed and potentially also Sep money supply and new lending, but the bulk of the activity and prices data have been delayed until 22 Oct, presumably due to the holidays. Judging by press reports, Taiwan’s central bank investigations are a threat to anyone selling USD/TWD. It would take a major US equity correction to produce a rally in USD/KRW capable of being sustained more than a few sessions. The weight of inflows to Korea and the dismal state of USD sentiment should keep the 1mth USD/KRW a sell in the low-mid 1170s. KRW NEER is still almost 40% cheaper than Feb-Mar 2008. TWD is less compelling but USD/TWD still targets 31.50/55 over 1 month. USD/CNY spot probably won’t reopen with a bang but NDFs should lean towards greater USD decline, with the 12mth initially probing towards 6.6560 (-2.5% implied USD).