Major Currencies vs. US Dollar

(week-to-date% change)

Talking Points

• EUR:Optimism on Berlusconi Departure May Not Prove Lasting
• GBP:Bank of England Policy Announcement Likely a Non-Event
• JPY:YenContinues to Stand Apart from Larger Market Themes
• AUD: Unemployment Rate Increase to Bolster RBA Rate Cut Bets
• CAD, NZD: Risk Trends in Focus, Fed-Speak and EU Crisis Key

Correlation readings between most major currency pairs and theS&P 500 – a proxy for market-wide risk appetite – have continued to strengthen, suggesting big-picture considerations remain firmly in control of price action. On this front, the two major themes at work remain the outlook forglobal economic growth as well as the evolution of theEuro Zone debt crisis. Needless to say, theJapanese Yen remains removed from this dynamic as fears of intervention interrupt the currency’s relationship with

On the growth front, are relatively quiet US economic calendar puts the spotlight on a series of speeches fromFederal Reserve officials after last week’s disappointing ISM manufacturing- and service-sector figures and dovish FOMC outcome rekindled QE3 expectations. Comments from Narayana Kocherlakota and Charles Plosser produced a narrowly hawkish lean in rhetoric so far, with the former policymaker’s remarks essentially balanced while the latter took a more overtly anti-stimulus posture. Needless to say, a pair of speeches fromChairman Ben Bernanke takes top billing for the remainder of the week, but Chicago Fed President Charles Evans and Vice Chairman Janet Yellen (both doves) are also set to hit the wires. Signs of an emerging consensus in favor of additional asset purchases are likely to boost risky assets at the expense of the safe-havenUS Dollar.

Turning to Europe, markets have turned their attention toItaly. The week began with the spotlight on aprocedural budget vote that was expected to show if Prime Minister Silvio Berlusconi had the wherewithal to wield sufficient power to push through deficit-reduction measures. While the measure passed, the Berlusconi administration failed of securing the necessary 316 votes to stay afloat andpledged to resign after austerity measures are passed next week, with early elections to follow. TheEuro rallied on the news, welcoming the arrangement because budget cuts would be passed before a government reshuffle, but traders appear far from sanguine. Indeed, Italy’s 10-year bond yields and their benchmark German equivalents widened to another record-high of 497bps.

On balance, this is not surprising. Passing austerity measures is not the panacea, with Greece as a case in point. Even after the initial budget cuts are passed, Italy will need a steady hand at the helm as the country moves to roll over €14.9 billion in debt this month alone. The prospect of early elections – complete with inter-party squabbling and feverish coalition-building – as opposed to the installation of a competent technocrat care-taker government doesn’t seem to do enough to reassure the markets. This keeps alive fears that the worst-case scenario for the Euro Zoned debt crisis – a meltdown in a country too big to be bailed out with currently available resources – remains a credible near-term possibility. Looking ahead, this is likely to weigh on the single currency as traders digest the latest news-flow.

Elsewhere, theBank of England is set to deliver an interest rate decision.It seems unlikely that the central bank will meaningfully alter the policy mix having just topped-up its asset purchase program last month, with Mervyn King and company in wait-and-see mode. Meanwhile,Australian Employment figures are expected to show the jobless rate rose to 5.3 percent in October, reinforcing bets on another RBA interest rate cut at the December 6 policy meeting.

EURO

Source: Bloomberg

Key Upcoming Events

DAY	GMT	EVENT	EXP	PREV	IMPACT
10 NOV	7:00	German Consumer Price Index (YoY) (OCT F)	2.5%	2.5%	High
10 NOV	9:00	ECB Publishes November Monthly Report	-	-	High
10 NOV	10:00	EU Commission Releases Econ. Growth Forecasts	-	-	High

BRITISH POUND

Source: Bloomberg

Key Upcoming Events

DAY	GMT	EVENT	EXP	PREV	IMPACT
10 NOV	12:00	Bank of England Interest Rate Decision	0.50%	0.50%	High
10 NOV	12:00	Bank of England Asset Purchase Target (£)	275B	275B	High

JAPANESE YEN

Source: Bloomberg

Key Upcoming Events

DAY	GMT	EVENT	EXP	PREV	IMPACT
09 NOV	23:50	Machine Orders (MoM) (SEP)	-7.1%	11.0%	Medium
09 NOV	23:50	Machine Orders (YoY) (SEP)	10.6%	2.1%	Medium
10 NOV	6:00	Machine Tool Orders (YoY) (OCT P)	-	20.1%	Medium

CANADIAN DOLLAR

Source: Bloomberg

Key Upcoming Events

DAY	GMT	EVENT	EXP	PREV	IMPACT
09 NOV	11:00	New Housing Price Index (YoY) (SEP)	2.3%	2.3%	Medium
10 NOV	13:30	International Merchandise Trade (C$) (SEP)_	-0.57B	-0.62B	Low

AUSTRALIAN DOLLAR

Source: Bloomberg

Key Upcoming Events

DAY	GMT		EXP	PREV	IMPACT
10 NOV	00:30	Employment Change (OCT)	10K	20.4K	High
10 NOV	00:30	Unemployment Rate (OCT)	5.3%	5.2%	High
10 NOV	00:30	Full Time Employment Change (OCT)	-	10.8K	Medium
10 NOV	00:30	Part Time Employment Change (OCT)	-	9.6K	Medium

NEW ZEALAND DOLLAR

Source: Bloomberg

Key Upcoming Events

DAY	GMT	EVENT	EXP	PREV	IMPACT
09 NOV	21:30	Business NZ Perf of Manuf Index (OCT)	-	50.8	Medium
10 NOV	0:00	ANZ Consumer Confidence (MoM) (NOV)	-	0.4%	Low

---Written byIlya Spivak, Currency Strategist forDailyfx.com

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