US Dollar May Extend Gains as Currency Markets Follow Risk Sentiment

Key Overnight Developments

• UK House Prices to Rise Most in 20 Months in October, Says Rightmove
• Japan: BOJ May Let Lending Programs Lapse in December, Service Demand Rises

Critical Levels



The Euro traded lower in overnight trading, slipping as much as -0.5% against the US Dollar. The British Pound traded sideways in a choppy 100-pip range above 1.6270. We remain short GBPUSD at 1.6617.

Asia Session Highlights



UK House Prices surged the most in 20 months in October, adding 2.8% from the previous month according to Rightmove, an online listing of for-sale properties. The annual growth rate registered at 0.2%, the first positive reading in over a year. While a number of recent surveys have shown similar outcomes, the uptick likely reflects shallow supply rather than a robust recovery in demand. Indeed, a survey from the Royal Institution of Chartered Surveyors (RICS), an industry association for real estate agents revealed last week that new buyer inquiries fell for the third straight month in September while the number of for-sale properties per real estate agent has declined by 21.5% from a year ago. Looking ahead, economists continue to expect the jobless rate to top 9% by the second half of next year despite September’s surprisingly strong labor market figures, which seems sure to derail any sustainable, demand-driven recovery in the property market for the foreseeable future as tenuous employment prospects keep Britons away from big-ticket purchases.

Japan’s Tertiary Index rose more than economists expected, adding 0.3% to show that service demand increased for the third consecutive month in August. The durability of the recovery after the effects of the government’s aggressive stimulus plan run their course remains questionable, however, with recent consumer confidence data showing mixed results while unemployment continues to push higher. For their part, the Bank of Japan said that private demand “was likely to remain relatively weak amid the worsening employment and income situation” according to minutes from September’s policy meeting that were released today. However, policymakers also noted that the positive effects of loose lending policies enacted amid the credit crunch to boost lending access were “on the wane”, suggesting financial market conditions had stabilized enough to let the measures expire as scheduled in December.


Euro Session: What to Expect



The economic calendar is empty in European trading hours, leaving currency markets looking to risk sentiment as the catalyst for price action. This may amount to continued strength for the safety-linked US Dollar as markets continue to digest Friday’s disappointing third-quarter results from Bank of America and General Electric. Negative news was compounded in Asia as electronics maker Casio reversed their 2009 forecast to project a loss while industrial robot producer Yaskawa Electric reported disappointing earnings. LVMH Moet Hennessy Louis Vuitton SA, the world’s largest luxury goods producer, is set to report third quarter earnings.


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