Today's Highlights • US Dollar advances a little on employment data • German industrial production slip is forecast FX Market Overview Last week finished with an oddly upbeat US employment report in which 114,000 fresh jobs were created in September and the August figure was also revised upward. These are very minor tweaks to a 23 million jobless total but still the unemployment rate fell to 7.8%. There is a lot of scepticism about that change and the conspiracy theorists wonder about the improvement conveniently coinciding with the Presidential election debates but no one has any facts to support that suspicion. The US Dollar, perhaps unsurprisingly, saw limited improvement after the data. It is Columbus Day today so American traders are at home and banks in the rest of the world choose not to book any trades for settlement on US holidays so same-day contracts are not available today. As for the rest of the week, well US data is fairly thin on the ground but we do get the release of the Beige Book; a kind of insider guide to how the Federal Reserve Districts see their local economy and we will have all manner of speeches from Federal Reserve speakers so it will be lively. Overall, the US Dollar is at the weaker end of its spectrum and I can see little reason for that position to change in the short term. Sterling had a mixed week last week ending the week stronger against the beleaguered US Dollar and the commodity related currencies but weaker against the well supported Euro. This week is light on UK data but we will get the trade deficit figures as well as industrial and manufacturing output data. As long as those aren’t dire and as long as David Cameron negotiates the Conservative Party Conference without any mishaps, the Pound should end the week on a relatively positive note. We start the week with the ominous feeling that German industrial production data, due for release this morning, if going to be very bad indeed. July’s figure was an annualised minus 1.4% and many analysts are forecasting August to give us a minus 3% number. After a week in which the Euro strengthened, that would be a perfect profit taking opportunity. Euro weakness would be even more likely if Chancellor Merkel’s trip to Greece doesn’t end on a high note and there is potential for problems later in the week when inflation data for almost every Eurozone country is announced and there is a Eurogroup meeting over the next few days which will be closely watched. Elsewhere, Australia’s data diary is awash with data this week. After China’s poor data last week, all eyes will be on Australia’s consumer confidence, business confidence, inflation expectations and unemployment figures. There is a strong chance these will all reflect the nervousness in the Australian economy as a result of slowing export demand and falling commodity prices. Expectations of further interest rate cuts from the Reserve Bank of Australia are growing and the Aussie Dollar remains weak as a result. Friday’s Canadian employment data was mixed. 52,000 fresh jobs were created but an additional 72,000 people entered the labour force so the unemployment rate rose slightly. The Canadian Dollar is perhaps less affected by domestic employment data than it is by data which reflects overseas demand for its export goods and, as mentioned above, the US data was upbeat but slightly mistrusted so the data for the export market that takes 70% of Canada’s exports didn’t give the Canadian Dollar the support it might have needed if it were to strengthen. And finally, beekeepers in the Ribeauville area of North Eastern France were alarmed when their hives started producing blue and green honey. After some investigative work, the problem was traced back to a biogas plant which uses the waste from M&M production to create energy products. You’ll be relieved to hear that changes have been made to ensure the bees cannot access the blue and green waste. All I can say is that when my kids had blue Smarties or blue M&Ms they were bouncing off the walls so DON’T GO NEAR THOSE BEES. SAVE YOURSELVES. Currency - Euro/US Dollar Traders really bought into the commitments by the ECB to push unlimited supplies of money into the Eurozone bond markets. They also bought into the Federal Reserve’s commitment to further quantitative easing. However, the two commitments elicited different responses. The euro strengthened because it was starting from a weak base and this was the first piece of good news for a while. The US Dollar weakened as those who had bought the USD as a safe haven, felt emboldened enough to venture out into more lucrative assets elsewhere. Question marks have appeared over the ‘unlimited’ nature of the Eurozone funds so the Euro has slipped and the US Dollar’s safe haven status has come back into play. The Euro will find support at $1.28 and $1.25 but if those don’t stop it falling, we are back into the downward trend we have witnessed for the last 18 months. As mentioned above, the Australian Dollar is highly susceptible to fluctuations in the Chinese economy. The fact that China takes 28% of Australia’s exports means any rise and fall in China’s economic activity has a direct influence on Australia’s mining and extracting industries and that, in turn, impacts the retail and service sectors in Australia. Those changes show up in commodity market prices and in retail and business activity. We will get confidence indices from both the consumer and business sectors this week and we will undoubtedly get further conjecture over whether the Reserve Bank of Australia is likely to cut its base rate again in November. As such, we ought to see further weakness in the Australian Dollar in the days and perhaps weeks ahead. As you can see from the chart above, if Sterling has the gumption, it could push the Aussie Dollar to the top of its 14 month long range. Any visit to A$1.60 should be considered an excellent buying opportunity unless A$1.61 breaks and the n the pattern will have changed significantly. If that happens, we should see A$1.64 and perhaps A$1.66 in very short order. Currency - GBP / Canadian Dollar Positive Canadian employment data has manifested itself in Canadian Dollar strength over the last two days of trade. Even the fact that Canada is on a public holiday today hasn’t stopped the bulls from buying the CAD. However, as you can see from the attached chart, we have a trendline which has not been breached since May 2010 and that will be encountered by this pair at C$1.55. Sterling buyers are arraigned along this trendline and that should provide a safety net for the Pound in the short term. As long as Sterling does bounce from there, we should see a continuation of the recent trading pattern. Support at C$1.55 and resistance to any further gains at C$1.60 and C$1.63. Currency - GBP / Euro Sterling looks a bit like the Grand old Duke of York at the moment. It marched the Euro up to the top of the hill and it is marching it down again. If that doesn’t make sense, have a look at the attached chart. The Pound started at €1.1750 in February and made nearly €1.29 in July. We retraced half of that move; back to €1.2325 last month and we are falling back to that level again as I write. Sterling is suffering because the UK economy is still not showing sufficient signs of life and because GB is closely aligned with Europe. This week’s data diary is a light one so Sterling is unlikely to have enough negative momentum to collapse below €1.23 but, if the EU leaders can agree something substantial on a debt resolution then Euro strength is highly likely, even if it is fleeting. A break below €1.23 opens the door to a very fast gain of a cent to 1.22 and perhaps a sustained push towards €1.20 before the year end so risk management is the key for Euro buyers. Currency - GBP / New Zealand Dollar A 2012 range of NZ$ 1.86 to NZ$ 2.10 gives you some impression of just how volatile the Sterling – New Zealand Dollar exchange rate can be. The current range sees this pair capped below NZ$ 2.00 and supported above NZ$ 1.94 but a six cent range is tiny in comparison to just how volatile this pair has been historically. The slowdown in China would certainly have seen the GBP-NZD rate rush to higher levels if only the Pound and the UK economy had more zing about it. There are rumours circulating that suggest the reserve Bank of New Zealand may be considering an interest rate cut when they meet on 25th October and the number and volume of those rumours will undoubtedly rise as we approach that meeting. NZD buyers should be seizing their opportunities whenever and if ever we see anything approaching NZ$2.00 whilst NZD sellers will be best placed if they try for anything better than NZ$ 1.94. Currency - GBP / US Dollar A dip in the US unemployment rate was greeted with just one raised eyebrow by the markets ion Friday as the slightly suspicious figures were distrusted. The fact that America is on Columbus Day holiday today could account for the slight strengthening of the US Dollar in thinly traded markets and you could argue that the US Dollar strength we see today will unwind tomorrow. Fundamentally, there is little reason for the US Dollar to strengthen and yet that is what it is doing. Technically speaking, the Pound should decline to $1.58 and then find support. That would be a 50% retracement of the move from the May 2012 low to the September 2012 high. And we saw a very similar decline between the end of April and the middle of May but that then accelerated to revisit the $1.52 levels by the end of May. Dollar sellers will be hoping that happens and Dollar buyers should protect themselves against a possible break of $1.59 and even $1.58 because history could very definitely repeat itself. The win A woman screeches her car into the driveway, leaves the door open and the keys in the ignition, runs into the house, leaves the front door swinging and shouts at the top of her lungs. "Quick pack your bags! I just won £80 million on the Euromillions lottery!" Her husband says, "Oh my GOD! You’re kidding? What should I pack; shorts or jumpers?" The wife yells back, "Why do I care. Take whatever you want. Just leave."

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