Talking Points
•    Japanese Yen: Weakness Continues
•    Pound: Testing Resistance Levels
•    Euro: Exports Decline Most in Seven Months
•    US Dollar: Earnings, IP and Consumer Confidence Data Ahead

Euro Stems Losses Despite Decline In Exports As Strong Earnings Provide Support

The Euro slid during Asian trading after a second failed attempt to break above 1.5000 but has regain its footing as positive stock markets have lent support. Solid corporate earnings continue to fuel optimism that a global recovery is around the corner.  However, the Euro-zoen trade balance report served as a reminder that considerable slack remains as exports from the economic region fell 5.8%in August-the most in seven months. This lead to the first trade deficit in six month of 4.0 billion euro erasing last month’s 2.5 billion euro surplus.

Across the board declines in demand from abroad including a 26% drop in machinery and vehicles. The auto industry is a primary driver of the region three largest economies in Germany, France and Italy and continues weakness could increase downside risks to growth. The ECB has maintained that currently risks are balanced, allowing policy makers to maintain their accommodative stance. We could potentially see a retrace today for the EUR/USD as 1.500 presents a staunch level of resistance.

The pound nearly broke through a zone of congestion overnight as the GBP/USD reached as high as 1.6401. The pair has cleared the 50-Day SMA but is being held in check by the 50.0% Fibo of 1.7048- 1.5706 at 1.6377. Sterling has continued to find support from comments from BoE member Paul Fisher that policy makers would prefer to keep their asset purchase program on hold. Signs that the global economy is improving has increase the chances that the central bank will take a wait and see approach.

After finding initial support the dollar has seen choppy price action since as markets await earnings reports from Bank of America, Halliburton and GE along with manufacturing and consumer sentiment data. Yesterday saw a pull back in risk appetite despite positive results from Goldman Sachs but Google’s strong results after the bell has U.S. futures pointing toward a higher open. September’s industrial production report will garner attention following the mixed results yesterday which showed robust activity in the New York area while the Philadelphia region contracted. Forecasts are for activity to have increased for a third straight month by 0.2% following a 0.8% gain in August. Although the pace of growth has declined over that period it is still a significant improvement over the eight straight months of negative results that preceded it. The University of Michigan consumer confidence survey will also cross the wires and the median forecast is for sentiment to have remained relatively flat at 73.3 following a reading of 73.5 in September. A weak labor markets continues to hamper optimism which may lead to a tough Holiday shopping season for retailers. The dour outlook for consumer consumption could elicit lead to lower profit projections which could weigh on stocks and provide greenback support.

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