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Forex Analysis: Yen Drops on Moody's Warning, Dollar May Rise on ISM

Forex Analysis: Yen Drops on Moody's Warning, Dollar May Rise on ISM

2012-11-01 06:05:00
Ilya Spivak, Sr. Currency Strategist
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The Euro may face selling pressure on swelling ECB rate hike bets as inflation hits a three month low. The Yen is vulnerable if US economic data boosts risk appetite.

Talking Points

  • Japanese Yen Sinks as Mood’s Warns on Negative Impact of Political Gridlock
  • US ISM Data May Weigh Boost Dollar on Signs Economic Momentum is Slowing
  • UK Manufacturing PMI Unlikely to Produce Lasting British Pound Volatility

The Japanese Yen underperformed in overnight trade, down as much as 0.5 percent against its leading counterparts. Forex traders sold the currency after Moody’s said the potential cancellation of bond auctions because of political gridlock over a debt-financing bill is “credit-negative”. The ratings giant added that smooth operation of the bond market is “crucial [because] not only is Japan's gross general government debt the highest of any advanced country, but its gross financing needs are also the most burdensome of any advanced country.”

Looking ahead, the spotlight falls on the US ISM Manufacturing report. Expectations suggest factory-sector activity narrowly slowed in October. Such an outcome may weigh on sentiment, interpreted by traders to indicate ebbing momentum behind US economic growth after a strong showing in September. That stands to weigh against hopes that a firmer US recovery will help offset weakness in Europe and Asia, denting risk appetite and boosting demand for the safe-haven US Dollar vis-à-vis the majors. The ADP Employment Change reading is likewise on tap, with forecasts pointing to a print at 135K in October following a revised 88.2K reading in the prior month.

UK Manufacturing PMI data headlines a relatively quiet set of European economic releases. Economists pencil in a reading at 48.0, showing the industrial sector contracted for the sixth consecutive month. The outcome seems unlikely to yield a lasting response from price action however given its limited implications for BOE monetary policy, where officials appear firmly planted on the sidelines as they assess the impact of the latest round of QE and the new FLS scheme.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

21:30

AUD

AiG Performance of Manufacturing Index

45.2

-

44.1

0:30

AUD

Export Price Index (QoQ) (3Q)

-6.4%

-6.4%

0.9% (R-)

0:30

AUD

Import Price Index (QoQ) (3Q)

-2.4%

-1.2%

2.4%

1:00

CNY

Manufacturing PMI (OCT)

50.2

50.2

49.8

1:45

CNY

HSBC PMI Manufacturing (OCT)

49.5

49.1

47.9

5:00

JPY

Vehicle Sales (YoY) (OCT)

-9.0%

-

-8.1%

5:30

AUD

RBA Commodity Price Index (OCT)

87.3

-

89.3 (R-)

5:30

AUD

RBA Commodity Index SDR (YoY) (OCT)

-16.0%

-

-15.7% (R-)

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:00

GBP

Nationwide House prices s.a. (MoM) (OCT)

0.1%

-0.4%

Medium

7:00

GBP

Nationwide House prices n.s.a. (YoY) (OCT)

-1.2%

-1.4%

Medium

8:15

CHF

Retail Sales - Real (YoY) (SEP)

-

5.9%

Low

8:30

CHF

PMI Manufacturing (OCT)

44.7

43.6

Medium

9:30

GBP

PMI Manufacturing (OCT)

48.0

48.4

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2901

1.3005

GBPUSD

1.6085

1.6183

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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