Forex Market Update

USD continues to grind higher. USDJPY eyeing US 10-year auction today.

Aussie momentum continues to fade as ugly trade and sentiment data weigh.

MAJOR HEADLINES – PREVIOUS SESSION

    * US Weekly ABC Consumer Confidence out at -47 vs. -45 last week
    * Australia Dec. Westpac Consumer Confidence out at 113.8 vs. 118.3 in Nov.
    * Japan Final Q3 GDP adjusted down to +0.3% QoQ vs. +0.7% expected and 1.2% in the first estimate
    * Australia Oct. Home Loans fell -1.4% MoM vs. -2.0% expected (Sep. data adjusted from +5.1% to 3.3%)
    * Japan Nov. Machine Tool Orders fell -8.6% YoY vs. -42.5% in Oct.
    * Switzerland Nov. Unemployment Rate steady at 4.1% vs. 4.2% expected
    * Germany Oct. Trade Balance out at 13.6B vs. 10.7B expected


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

    * Sweden Oct. Industrial Production/Orders (0830)
    * UK Oct. Visible Trade Balance (0930)
    * UK Pre-Budget Report Published (1230)
    * US Fed’s Duke to Speak (1340)
    * US Oct. Wholesale Inventories (1500)
    * US Weekly DOE Crude Oil and Product Inventories (1530)
    * New Zealand RBNZ Official Cash Rate (2000)


Market Comment
The USD continues to trade stronger despite relatively tepid support from the major fundamental inputs like interest rate spreads and risk appetite, with the S&P off less than -3% from last week's high for the cycle. Speculation that some of this action may have to do with significant participants taking their chips off the table for the year may be warranted. In any case, the move seems a product of a sentiment shift towards more uncertainty and seems more driven by market positioning and crowd dynamics rather than the obvious fundamental inputs at the moment. Our carry trade index suggests less support for the USD carry trade over the last 24 hours as many of the various risk appetite inputs into that model were pointing toward more risk aversion:  FX volatility is expanding, the VIX is higher, and forward CB expectations continue to contract. US weekly confidence was a disappointment for those looking for an improving trend to develop.

Chart: EURJPY
EURJPY certainly giving traders whiplash as the screaming rally back above the 200-day moving average (black line) and to the far side of the Ichimoku cloud formation has now yielded to a full 0.618 Fibo retracement and beyond in the space of a couple of days. The downside could yet continue if we see a further expansion in the equity sell-off and especially if  wee see a follow up on the tremendous rally in top quality Euro government paper in the coming days.