(All times GMT)
- US Fed's Bernanke to Speak (1500)
- US Oct. NAHB Housing Market Index (1700)
- US Fed's Kohn to Speak (2030)
- Australia RBA to release October Meeting Minutes (0030)
- Japan BoJ Deputy Governor Nishimura to Speak (0130)
Market Comments:
The USD attempted to extend its comeback in early Asian hours by having a look below the key short-term level at 1.4850 in EURUSD, but as is often the case with breaks in the Asian timezone, the move failed to hold and the USD was pushed back close to recent lows, largely because risk appetite was resurgent once again, but also as a hawkish appearance from the RBA's Lowe ("The Australia economy has turned out to be quite a lot stronger than we thought", "It's entirely appropriate we go back to a more normal setting in monetary policy." "[Australia] will have a higher average exchange rate") helped to underline the theme of widening interest rate expectations punishing the USD and the JPY vs. the higher yielders. As for USDJPY, it has so far survived a test of the critical support around 90.40
UK and US housing data
The pound failed to appreciate despite Rightmove's Sep. report indicating that housing prices showed the first year on year gain since early 2008. GBP has taken on the characteristics of an alternative to the weak USD due to its similar situation and could remain on the weaker side of the range as long as risk appetite remains strong. Focus shifts to the US housing market today and tomorrow, as the US reports the latest NAHB survey today and tomorrow reports September Housing Starts and Building Permits. The US price changes are barely rising on a month to month basis so far, by far lagging the UK market due to the tremendous supply overhang in the US. One note of interest on US housing - the first time homebuyer tax credit is set to expire December 1, but congress is apparently looking to not only extend this credit, but to make it available to all home buyers . This could pull forward more housing demand (reports are that first time home buyers are an unusually high percentage of home buyers due to the current heavy incentive, so housing demand will plummet for a few months if Congress doesn't try to keep the party going), though one wonders how much of this demand would cannibalize future demand - much like almost everything the US Fed, Obama administration, and Congress have attempted over the last year.
Brewing bubble
A story from Bloomberg today discusses Asian countries' (ex China) struggle to fight the sharp appreciation of their currencies vs. the USD. The likes of Korea, Taiwan and the Philipines are taking various measures to threaten intervention or are already trying to clamp down on increasing speculation in USD weakening vs. their currencies. Besides outright speculative USD selling, it is increasingly common to see corporate borrowing in dollars in anticipation that they will be able to pay back the loans at a lower rate than they borrowed at (and not only due to the low interest rate). All of this is aggravating the weak US fundamentals and highlights how the speculative world views the weaker greenback as a sure thing. It also, however, increases the risks of periodic and nasty reversals as the carry trade and the global move in risk appetite in general are increasingly taking on the characteristics of a new bubble. The bubble can inflate to any level imaginable - like AUDUSD rising to the much bandied about parity level - or even 1.10 - as long as nothing sufficiently disturbing materializes to alter perceptions and market participants continue to chase the trend. But the psychology and positioning excesses of a bubble increasingly creates the risk for an ugly unwind similar to last year's chaotic deleveraging (though a black swan of that magnitude is unlikely to swoop onto the scene considering the central bank activism that The Last Time generated.) For now, the action appears very stretched, but things can become grotesquely stretched as long as a bubble is inflating.
Looking ahead
Today is a light day on the US calendar as usual for a Monday, Bernanke is out speaking in California on the Asia and the financial crisis, and we do see the release of the NAHB Housing Market Index later today. This is the best forward indicator of US housing demand.
As we wrote on Friday about the rest of this week's calendar:
This week sees a bit of central bank activity, with the Bank of Canada up on Tuesday (no change to 0.25% rate expected and will be interesting to see what the bank has to say about the level of the currency and how much it figures into the equation) and the Riksbank on Thursday. The Riksbank is an interesting case, with its very low 0.25% rate and a relatively dovish central bank - but the market has priced in almost 150 bps of tightening by the bank for the year forward. With EURSEK trading close to the key 10.37 area resistance as we end the week, we could get a bit of volatility from the bank's guidance on policy. Finally, the BoE minutes of the most recent meeting will be published on Wednesday. Mervyn King is to speak on Tuesday.
Other key data points: US PPI, Housing Starts and Building Permits on Tuesday, Canada Retail Sales on Thursday, and Germany's important IFO survey on Friday.
Today's Chart: AUDUSD
AUDUSD has churned back higher after the latest RBA comments, but stochastics suggest that the action is becoming a bit stretched and the pair could be in for a bit of ranging and consolidation here in the short term in order to digest the latest move. The caveat in a bubbly market is that mean reversion is never guaranteed.
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