Themes to watch - Upcoming session

Key data today:

• Bernanke to speak at Economic Club of New York (23:05 GMT)
• NZ Non-resident Bond Holdings (02:00 GMT)

Market Comments

The USD saw mixed data Friday, and responded appropriately with a back and forth session that saw little conviction. The rate environement continues to call for a stronger USD than we are seeing at present, and Bernanke's speech tonight may offer further hints on the expected Fed trajectory going forward.  The market is only pricing in a -30-40 bps for 1-year forward Fed Funds moves and this could contract further on such rhetoric.  Also, the indication that the FOMC was fretting about possibly USD weakness at the meeting back in mid-September, and the odds for any move by the FOMC in October are rapidly fading. So far, however, we see little to favor the USD on a technical basis.

One possible key event risk ahead for the USD in the immediate future is this weekend's G-7 meeting in Washington. It is generating more than the usual amount of speculation as the market mulls the possibility of a coordinated effort from various corners to intervene verbally and even threaten real intervention. The ECB has already begun to show signs of discomfort as we saw with Trichet's sarcastic remarks about the US' strong USD policy, and the Bank of Canada was already voicing concern before the last 2% leg of CAD strength vs. the USD. Some have pointed out that the G-7 is not inclusive enough and has fading impact potential for global markets, as key players with huge FX reserves like China, Russia, ME oil exporters, etc. are vital players in the market but don't have a seat at these meetings. In any case, the expectations of any real development are always rather low, but the odds are still much higher than usual this time around that something will happen considering where we are trading on the USD.

Another subject that may be on the agenda is the issue of sovereign wealth funds, according to an article in the Times this morning - as the paper claims that the US will present strict new rules about these funds at the meeting. Sovereign wealth funds are becoming a huge influence in global markets and should be on everyone's radar. A shocking claim from this article states that half of the shares on the London Stock Exchange are held by Qatar and Dubai. Any dramatic new protectionist impulse from the US, in any case, could have huge implications in the currency market and be enormously negative for the USD ...

Elsewhere, the JPY continues to flail for support as general risk willingness remains high. EUR/CHF has been lifted on the same phenomenon, though I wonder whether the end is near for that one. On the flipside of this, CAD is getting absurdly stretched and AUD as well. Will the BoC have anything to say about CAD tomorrow - undoubtedly...  NZD looks very weak after the CPI data overnight and as long as tonights foreign bond holdings data provides support, could continue to crumble vs. most other majors.

Charts: EURGBP and NOKSEK

EURGBP: A busy week ahead for the UK, with CPI and RPI tomorrow, the BOE minutes on Wednesday, Retail Sales out Thursday, and the first go at Q3 GDP on Friday. This rash of data could help spark a renewal of the weaker GBP trend or reject that trend and see the pair continue its rangebound ways of the last several years. I favor the weaker GBP argument and we have found support around the 0.382 Fibo retracement.

NOKSEK: NOK has been on a tear due to the stronger oil prices and a hawkish central bank. But the last round of oil price rises hasn't seen further NOK appreciation and rates have been rising far slower than in Sweden over the last week. NOKSEK looks vulnerable below recent lows at 1.1800, which was the 0.382 Fibo area and now flatline support possibly opening up for 1.1660 area. also note the inability of the pair to hold above the 1.1925 area and rejection at 1.2000.

Note: the support/resistance levels used in the matrix’s of this document are levels derived from yesterday high, low and close. Reference in the text to other support/resistance levels will occur.