Forex Market Update

Strong Australian employment boosts the Aussie. Bank of England to announce rates and QE intentions.

SNB also out with rate announcement today. US Trade Balance and Weekly Jobless Claims data on tap later.

MAJOR HEADLINES – PREVIOUS SESSION

    * New Zealand RBNZ left rates unchanged at 2.50% as expected
    * New Zealand Nov. Business PMI out at 61.8 vs. 50.5 in Oct.
    * Japan Oct. Machine Orders fell 21.0% YoY vs. -20.9% expected and -22.0% in Sep.
    * Japan Nov. Domestic CGPI rose +0.1% MoM vs. -0.2% expected
    * Australia Nov. Employment Change out at 31.2k vs. 5k expected
    * Australia Nov. Unemployment Rate fell to 5.7% vs. 5.9% expected, and 5.8% in Oct.


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

    * Sweden Nov. CPI (0830)
    * Switzerland SNB sets 3-month Libor Target Rate (0830)
    * Norway Nov. CPI (0900)
    * Norway Nov. Producer Prices, Including Oil (0900)
    * EuroZone ECB publishes monthly report (0900)
    * Bank of England Announces Rates (1200)
    * Bank of England Asset Purchase Target (1200)
    * Canada Oct. International Merchandise Trade (1330)
    * US Oct. Trade Balance (1330)
    * US Weekly Initial Jobless Claims (1330)
    * US Treasury's Geithner to testify about TARP (1500)
    * US Fed's Duke to Speak at Chicago Fed Conference (1845)


Market Comments
The strong Australian employment report boosted the Aussie sharply against the rest of the market as fresh shorts were squeezed back up close to the key 0.9180 resistance in AUDUSD before closing the Asian session well below that figure. Looking at the reaction to the employment data in the STIRs market, we see the Dec. 2010 90-day bank bill future ended the day about 12 ticks lower, a fairly sharp move, but about the same level it closed on Monday. Since late October, the market has taken as much as 90 bps of forward rate expectations out of the market until the recent 30-bp. uptick. Most important to note in the report was the strong growth in full time employment (+30k) vs. part time employment . It seems that a larger dent in the Aussie will require a stronger sell-off in equities. Down the road, the biggest threat to the currency would be a sharp decline in materials exports to China if that country every slows its hyper-drive build out of infrastructure.

The surge in Aussie and Kiwi on strong fundamentals and the strong Canadian dollar yesterday on no discernible input made it a hat-trick of strength for the commodity currencies against the greenback, despite the weakness still evident in many EM currencies - a rather strange divergence that should have a hard time holding. The European currencies, on the other hand, remain on the weak side against the USD and EURUSD will need to overcome the 1.4760/80 zone of resistance to threaten higher again in the shortest term.

Chart: AUDUSD
AUDUSD remains within the larger range and the weekly pivot at the 0.9180 appears to be the tactical resistance level of interest this week as the pair decide on which side of the range to trade. If risk keeps a relatively even keel here, the pair may have a chance at a move higher within the range here. But if risk appetite sours again, it could trump the supportive fundamentals for the Aussie from higher Australian interest rate spreads versus the other major currencies.