FOREX: Pound May Look Past Jobs Report as QE Outlook Remains in Focus

Key Overnight Developments

• US Dollar, Japanese Yen Sold as Asian Stocks Advance on Fed Meeting Minutes
• Japan’s Machine Orders Outperform, Australian Consumer Confidence Recovers
• China’s Trade Surplus Narrows as Export Growth Cools to Slowest Since March
• UK Consumer Confidence Down to Lowest in 18 Months, Says Nationwide

Critical Levels

The Euro and the British Pound advanced in overnight trade, adding 0.3 and 0.2 percent respectively against the US Dollar as the greenback underperformed amid a broad recovery in risk appetite (see below). We remain flat GBPUSD and EURUSD.

Asia Session Highlights

The US Dollar and Japanese Yen slumped as stocks advanced in Asian trade, with risk appetite seemingly latching onto the release of the minutes from the September’sFederal Reservepolicy meeting, wherein the rate-setting FOMC concluded that “it may be appropriate to take action soon” on resuming monetary stimulus measures. An encouraging set of Asian economic data also helped. Indeed, Australian Consumer Confidence added 3.3 percent in October after falling in the previous month while Japan’s Machine Orders added a whopping 10.1 percent – the most in eight months – crushing expectations of a 3.9 percent decline. The MSCI Asia Pacific regional benchmark index added 0.4 percent, the most in five days.

The calendar was not without its weak points, however. China’s Trade Balancesurplusnarrowed to the smallest in five months as export growth cooled to an annual pace of 25.1 percent, the slowest since March. Meanwhile, UK Consumer Confidence dropped to the lowest in 18 months according to a report from the Nationwide Building Society. Furthermore, as we discussed in our analysis of the Fed minutes release, the market may be attributing a greater level of conviction about future QE on the part of the US central bank that the FOMC is actually projecting. On balance, this hints that the upswing in risk appetite may be short-lived. Indeed, S&P 500 stock index futures are very little changed in late Asian trade, hinting pro-risk momentum may not carry over into European hours.

Euro Session: What to Expect

UK Jobless Claims headline the economic calendar in European hours, with expectations calling for a modest 4,500 increase in September, leaving the Claimant Count Rate (a proxy for the jobless rate) unchanged at 4.5 percent. A 3-month average Unemployment Rate from the International Labor Organization (ILO) is likewise expected to remain unchanged at 7.8 percent. On balance, as we suggested in our weekly British Pound forecast, the focus for Sterling price action remains on traders’ expectations of further QE from the Bank of England. Yesterday’s comments from BOE policymaker David Miles struck a relatively neutral tone, with the rate-setting MPC’s standby hawk Andrew Sentence on tap to hit the wires today.

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