As US elections approach the USD appears to be holding up reasonably well, edging higher against major currencies including EUR and JPY helped in some part by a recent increase in risk aversion. Notably Asian currencies remain firm taking their cue from a firmer CNY rather than the slightly stronger USD. The notable break below 1100 for USD/KRW highlights the still strong impetus for Asian currencies.
Although a fixation with the outcome of the US elections may limit market movements the USD is likely to remain generally well supported ahead of the important US October jobs report. In general US data this week will look relatively positive, with consumer confidence, the October manufacturing ISM survey and likely to move higher in October. Non farm payrolls in October are also likely to be stronger than the September increase although the unemployment rate may edge higher to around 7.9%.
In contrast progress in the Eurozone on the debt front is frustratingly slow, with little sign of any request for Spanish financial assistance. At least there appears to be some traction in Greece, with agreement on spending cuts amounting to around EUR 13.5 billion to be deliberated this week opening the door to the next disbursement of loans to the country. Lack of progress in Spain taken together with superior US data (note economic sentiment gauges in Europe are set to reveal a deterioration tomorrow) will weigh on the EUR, with the currency likely to continue to drift lower, with a test of 1.2825 on the cards.
The JPY has been a relatively exciting currency over recent days, having weakened against the USD in the wake of higher US bond yields. Expectations of additional easing by Japan’s central bank at its meeting tomorrow are also helping to put pressure on the JPY. The BoJ is expected to announce an additional JPY 200 billion of purchases of Exchange Traded Funds and additional purchases of JGBs. Such action has partly been priced in and while the JPY will remain under some short term pressure a sustained break above USD/JPY 80 appears unlikely unless the central bank delivers more aggressive measures than anticipated.
Mitul is the author of the forthcoming Chronology of a Crisis
A bit more about Mitul Kotecha
I have worked in the financial industry as a strategist/economist for over 18-years in several corporate and investment banks in London. I have covered a range of financial products including bonds, interest rates, equities and foreign exchange.
I am currently working in Hong Kong for Crédit Agricole Corporate & Investment Bank, where I am the head of global currency strategy, in charge of a team of analysts providing research and strategy for the bank’s clients and internal trading and sales teams.
I hold an honours degree in economics and a masters degree in economics and finance and have developed a comprehensive knowledge of economic and financial theory during my studies and in my employment.
I am regularly consulted by the press/media for my views on markets and economies appearing regularly on business channels such as CNBC, Bloomberg TV, Channel News Asia, and Reuters TV. I am also regularly quoted in various newspapers including the Financial Times and Wall St. Journal as well as various newswires including Reuters, Bloomberg, Associated Press, Dow Jones and many others.