USD to record lows again - USDJPY crossed the key 109.00 threshold overnight ahead of long US weekend.

MAJOR HEADLINES – PREVIOUS SESSION
Overnight developments:

• US Fed's FOMC minutes from Oct 31 meeting showed lower forward growth estimates.
• US Weekly ABC Consumer Confidence fell to -19 vs. -17 the previous week.
• Australia Sep Westpac Leading Index out at 0.8% vs. 0.6% exp
• Japan Oct Adjusted Merchandise Trade Balance out at JPY +1072B vs. JPY +1057B exp.

THEMES TO WATCH – UPCOMING SESSION
Key event risks today (all times GMT):

• UK BOE Minutes (0930)
• US Weekly Initial Jobless Claims (1330)
• Canada Sep Retail Sales (1330)
• US Nov University of Michigan Confidence (1500)
• US Crude Oil and Product Weekly Inventories (1530)

Market Comments

The FOMC minutes and forecasts released yesterday evening triggered little action, as the market continues to project an aggressive easing from the Fed for the year forward. The Fed's new forecasts project that 2008 inflation would remain contained, with some worries over food and energy prices. The growth forecasts were lowered to 2.25%, below the levels predicted by economists elsewhere. The Q4 2007 growth projection was particularly pessimistic. Rates saw little reaction to the release. The market paid little notice to the more interesting note from the FOMC minutes that the decision to cut rates last time around was a "close call". This is an important sign that at some point, the Fed's worry over the implications of a weak USD for inflation could give it pause. The market sees virtually no chance of this in the coming months so far, however.

In fact, the focus was very much elsewhere yesterday, as the big mortgage entity Freddie Mac reported a USD 2 billion loss and indicated it will need a huge capital injection to shore up its reserves. This is serious business and goes to show how tight credit must be in this market with every lender out there scrambling for liquidity. The growth implications of a tight credit market are stark - and in fact, to this analyst, the Fed growth projections of 2.25% for 2008 look downright rosy. The fixed income market seems to think so too.

US Equities managed by some miraculous feat of stubbornness to tick up nicely into the close after posting new 3-month lows, but are off again overnight as oil hit 99 dollars/barrel overnight and as Asian markets were getting pummeled. The JPY is moving stronger in sympathy and USDJPY was even through 109.00 overnight. EURUSD looks like it will make a bid at the 1.5000 level sooner rather than later. Watch the headlines as oil hits 100 dollars/barrel. The market is also focused on the prospect for GCC countries to revalue their currencies due to the pressures caused by their USD pegs, inflation from European import, and the petrodollars that keep piling up at an alarming rate. The next focus is on the Dec 3-4 meetings of the GCC Council. Forwards are already pricing in a reval for the AED and QAR in the coming months.

On the data front today, watch the Canadian Retail Sales number for any signs of a weaker consumer. Yesterday's very low CPI data is helping to increase the odds that the BoC will cut in December - though the new rise in oil prices is a note of caution and the currency may be oversold in places. Still, the gargantuan sell-off in CAD versus other non-USD majors (CADCHF is off almost 10% from its highs in November!) shows that a cyclical top is likely in for that currency vs. the rest of the G10 as a basket, and now its a question of finding when and where to short it.

Also watch the BOE Minutes for signs of when the rate cut may be coming from the UK. The EURGBP story is in full swing - the question at this point is where to find entry levels for a go at the 0.7255 resistance. The US Michigan Confidence number is another one to watch as general confidence in the US is in terrible shape and the Michigan number is closing in on the lowest levels since the 1990-1 recession.

Charts: USDJPY

USDJPY had a look below the key 109.00 level overnight and could be headed for lower levels still as long as it remains below the recent 109.60 support that it broke overnight. If the pair manages to pull back higher above 110.00 again in the short term, it could be in a for a longer bout of range trading.