FX News Today

The USD dropped back, after the Q3 GDP miss, and slightly better claims data.. The meager 1.5% rise in Q3 GDP and small 1k uptick in jobless claims was on balance, as the Fed says, policy will remain very accommodative even with a small lift-off. U.S. equities slipped lower after their impulsive rally yesterday in the wake of the hawkish FOMC hints.

EURUSD rebounded, after German Oct HICP inflation jumped to 0.2% y/y from -0.2% y/y in the previous month. The national CPI rate rose to 0.3% y/y from 0.0% y/y. Stronger than expected numbers, which lift the German headline rate out of negative territory again. The EURUSD rallied to 1.0986 from 1.0900. The German DAX fell off 0.6% after a mix of indicators and news that Deutsche Bank is laying off 35k staff and closing operations in several countries.

GBP U.K. consumer confidence came in weaker than expected, and dropped to 2 from 3 in the previous month. The pound logged a fresh low at 1.5242, making this the seventh straight daily lower low. The latest leg lower comes on the back of a EURUSD dip, though GBP has been on a weakening bias, which followed disappointing Q3 GDP data earlier in the week. GBPUSD closest support is at 1.5300, the Oct 13th low at 1.5200 provides the next downside support after 1.53.

Bank of Japan left policy unchanged, with 8-1 vote in favor of keeping QE steady. The USDJPY had been attempting to hold the 121 area, but fell back to 120.30 lows after the data, before recovering over 120.80. In Asia, Japan’s Nikkei rose just 0.17% while the Shanghai Comp gained 0.36%.

China, the Yuan surged, the most since March following comments from China’s central bank indicating that it will test yuan capital account convertibility in a free trade zone in Shanghai. The People’s Bank of China earlier strengthened its daily onshore reference rate.

Main Macro Events Today

• JPY Japan’s core CPI fell 0.1% y/y in September: which was a smaller decline than expected to match August’s 0.1% drop. But the core CPI (excludes fresh food) has still contracted for two straight months, moving in the opposite direction the BoJ is looking for. Total CPI was flat in September after the 0.2% y/y gain in August. The core-core, which excludes fresh food and energy, grew 0.9% y/y in September after the 0.8% rise in August. Meanwhile, the Tokyo core CPI fell 0.2% y/y in October after a matching 0.2% drop in September. The declines in national core CPI are supportive of further easing, if the BoJ feels it is necessary at this time. Other data showed a steady and expected 3.4% unemployment rate in September but a 0.4% y/y drop in household spending during September that ran contrary to expected growth.

• EUR EMU Inflation: October HICP was seen rising to 0.1% y/y from -0.1% y/y in the previous month, but could surprise on the upside, following the higher than expected German HICP reading yesterday. Inflation may be moving out of negative territory again, but the trajectory remains very weak and a slightly better than expected number is unlikely to deter the doves at the ECB from further easing, although if hawks will feel strengthened in their argument that the central bank already has done enough, especially if the Fed hikes in December, which should also take some pressure of the ECB to hike again.

• CAD GDP: It’s expected for GDP to rise 0.1% in August after the 0.3% gain in July. Further growth in August would contrast with the back to back declines seen from January to May, and track expectations for a rebound in Canada’s economy following the dismal performance in Q1 and Q2. The market anticipates a 3.0% Q3 GDP gain that will marginally outpace the BoC’s cautious 2.5% estimate..

• U.S. Michigan Consumer Sentiment: The second release on October Michigan Sentiment is out later today and its expect the headline to be revised up to 93.0 (median 92.5) from 92.1 in the first release and 87.2 in September. Michigan Sentiment has displayed a fairly consistent trend towards upward revisions in the second release but the October Consumer Confidence measure dropped to 97.6 from 102.6 in September which could signal downside risk for the second Michigan release.

• U.S. Personal Income: September personal income data is out today and should show income up 0.1% (median 0.2%) with consumption growing 0.1% (median 0.2%) as well. There is downside risk to the release from the weak September employment report which saw aggregate income decline by 0.2% for the month on the back of softer hours worked data and a lower headline. Q3 GDP revealed a slower path of consumption which a 3.2% figure versus a stronger 3.9% in Q2.

Janne Muta

Chief Market Analyst

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