Week ending 24 October 2008

The safe haven flow of funds, from collapsing emerging markets to the U.S., continued full strength. With the global slowdown looming bigger and rougher than previously anticipated, currency markets are equalizing from USD multi-year lows, and only the yen’s appreciation through the unwinding of carry trades could top it. The VIX index neared 90, an historical record, ending a light data week that received scant attention anyways.

Australian 3Q2008 PPI rose 2.0% q/q with the annual rate at 5.6%, an historic high, while CPI for the same period rose 1.2% q/q and 5.0% y/y. Although AUD/USD lost 7.3% in the week, the headlong slide from previous weeks appears to have slowed, with resistance at 0.7050 but some support at 0.6100.

The FOMC meets 29 October and is anticipated to cut rates by at least 25bps. This trend will likely continue for several additional months; however, the Fed funds rate is already at 1.5%. Existing home sales in September rose 5.5%; however, 35–40% of those were distressed or foreclosure sales, and mortgage applications fell −16.6% in the week. Surprisingly, the September Leading Indicators rose 0.3%, with positive pressure from purchases, forecasts, and consumer orders offsetting negative pressure from employment, stocks, and building permits.

Eurozone October PMI readings fell into recessionary territory, with manufacturing at 41.3 and services at 46.9. August industrial new orders fell −1.2% m/m and −6.6% annually, while the August current account deficit widened to −€8.4Bn from −€1.8Bn. EUR/USD entered a bearish price channel on 23 September, best seen on daily and four-hour charts, and closed the week at 1.2582 near the lower portion of that channel.

The U.K. printed its first quarter of negative growth with 3Q2008 GDP contracting −0.5% q/q and the annual reading at 0.3% y/y. September retail sales fell −0.4% m/m and printed 1.8% annually, down from 3.3% in August. EUR/GBP rose sharply on the news, spiking to 0.8195 before falling just as sharply to close at 0.7914, down 2.5% in the week, while GBP/USD had its worst week since George Soros’ shenanigans in 1992, collapsing 8.2% to close at 1.5902.

The BoC trimmed rates by 25 bps to 2.25%. September CPI rose 0.1% m/m and 3.4% y/y, with the core holding steady at 1.7% y/y. August retail sales fell −0.3% m/m with or without autos; however, wholesale sales fell −1.5% after July’s rise of 2.7%. USD/CAD rose 7.5% for the week and 17% to date for the month, larger than any annual move since 1950, finding resistance at 1.2840 and closing at 1.2726. AUD/CAD could not push through resistance at 0.8480 and smashed beneath its price channel to close at 0.7887.

As expected, the RBNZ slashed rates by 100bps to 6.5%. 3Q2008 CPI moderated slightly to 1.5% q/q although the annual rate remained at 5.1%. NZS/USD fell 5.7% in the week to close at 0.5590, and AUD/NZD remained rangebound between 1.0900 and 1.1420.

The BoJ meets 31 October and is unanimously expected to hold rates at 0.5%. September’s merchandise trade fell −94.1% y/y with the surplus measuring ¥95.1Bn, down dramatically from ¥327.56Bn in August. The yen pennants all proved to be continuations, with USD/JPY rising to resistance at 102.40 then falling to 90.91 before recovering to 94.63. EUR/JPY collapsed as low as 113.76 then closed at 119.06, while AUD/JPY punched through support at 64.75 and kept falling, spiking beneath historical lows at 55.52 before closing at 58.65.