Talking Points:
DollarSteadies as Market Makes a Tentative Risk Move
British Pound Checked by BoE Minutes, Carney May Sink Currency
Euro Ignores Spain 3Q GDP Forecast, PMI Figures Today

Dollar Steadies as Market Makes a Tentative Risk Move
There was a flutter of risk aversion this past session which temporarily leveled the dollar off. Yet, as broad as the sentiment hiccup seemed, it has yet to show the commitment needed to forge a more meaningful dollar recovery. There are generally two elements that speak to a market-wide sense of risk trends (be it ‘risk on’ or ‘risk off’) – breadth and depth. In assessing the former, equities were down globally, carry trade was fading, high-yield assets were on the block and the dollar edged up from a 10-month low. When the appetite for safety spreads across asset and geographic boundaries, it often carries more weight. Yet, the conviction behind the move is where we find the real momentum for follow through – and the dollar’s salvation – lies. The greenback lacked the drive of the yen, and the stimulus-assured S&P 500 refused to retreat far from its record high. A lack of momentum on the onset is to be expected if the spark was an afterthought of Tuesday’s NFPs or the news that Chinese banks reported hefty loan writeoffs while the PBoC was considering tightening monetary policy to curb inflation. A deleveraging event can be a self-generating cycle, but it typically needs a big push. These aren’t the catalysts we need.

British Pound Checked by BoE Minutes, Carney May Sink Currency
With GBPUSD standing just below 1.6250 (a multi-year trendline resistance) and EURGBP positioned below 0.8500 (seven-week support for the sterling), the market was prepared for the release of the BoE minutes. The transcript of this month’s monetary policy meeting kept much of the cautious language seen in previous updates. However, were a few comments for the rate hawks that had driven the currency aggressively higher over the past few months to bite on. Notably, the statement included a remark that labor market slack was evaporating a little more quickly than expected. If the desire was to find anything that verified a preconceived expectation, that could have played the part. Instead, pound and Gilt yields stumbled. BoE Governor Carney may offer a little more proactive guidance in his 16:45 GMT speaking engagement.

Euro Ignores Spain 3Q GDP Forecast, PMI Figures Today
There were a few mixed headlines for the euro this past session. On the bullish side, the Bank of Spain’s monthly bulletin estimated the local economy grew 0.1 percent through the past quarter. If confirmed by the official data due next Wednesday, it would be the first positive quarterly growth for the country since 1Q 2011. In contrast, the negotiations between austerity and growth may heat up going forward. Greek coalition leaders met to discuss their strategy with the Troika. Doubts over the accuracy of Greece’s 2014 forecasts are well documented, and the bargaining for further debt relief could prove difficult if the government refuses demands for additional spending cuts. Looking ahead, we have bigger event risk on tap. The two-day EU Summit begins today – though expectations are for big items to be reserved for the December meet. The October PMI figures, however, are ripe for speculative influence now. Timely measures of growth, this is good 3Q GDP lead in.

Australian Dollar and New Zealand Dollar Rate Forecasts Fade
Interest rate expectations are a significant aspect to FX pricing – particularly for the traditional carry currencies. As such, the recent drop in yield forecasts for the Australian and New Zealand dollars spells trouble for the currencies. As would be expected, the market’s outlook for interest rates follows the general level of sentiment for the capital markets. The recent check in bullish equity momentum has in turn exacerbated a pullback in 12-month rate forecasts for the two. Despite the better-than-expected 3Q CPI figures, the coming year’s RBA forecast has eased back to 6bps (from as high as 18). The situation is more painful for the kiwi with the RBNZ’s outlook now at 73 bps (from 97 last month).

Canadian Dollar Tumbles as Bank of Canada Voices Unexpected Dovishness
It’s always the quiet ones… Little was expected from the Bank of Canada from its policy meeting this past session. The consensus was for a status quo that was optimistic on growth, caution over the housing sector and a view that the next move would be an eventual rate hike. That last part was conspicuously absent however. While the central bank didn’t shift from hawkish to dovish overnight, they did leave out the explicit rhetoric on a need for future rate hikes. Over the past few years, the Canadian dollar lead the rate forecast segment – though not current rates – due to a persistent vow that a hike was in the horizon. That spectrum has shifted and Canada now finds itself in the same position as the Fed. Meanwhile, the growth forecasts for 2013 (1.6 from 1.8 percent) and 2014 (2.3 from 2.7 percent) were lowered; while the expected return to the 2 percent inflation target was pushed out to the fourth quarter of 2015. This is a painful shift for an already second-tier carry.

US Oil Tumbles a Third Day as US Supply Jumps
There is some heat to oil’s collapse this week. What was originally a move to break $100, the US-based West Texas Intermediate (WTI) oil evolved into a hefty three-day, 3.9 percent decline. The decline through the dollar’s own stumble Tuesday was particularly remarkable as a drop in the value of the pricing instrument typically leads into to a rise in the value of the commodity. Yet, the fundamental backdrop is certainly building a defense for cheaper crude prices. Besides the dollar impact the NFPs offered, it was also confirmation of a moderating growth outlook for the world’s largest economy. The US isn’t the only country limiting energy demand due to uneven economic activity. We will see manufacturing activity readings – a good measure of such needs – for Asia (China), the Eurozone and US over the coming 24 hours. On the supply side, stories are circulating that Iran is contacting Western dealers bolstering expectations that sanctions could be eased in the near future. In the US, DoE inventors for last week jumped 5.246 million barrels – the fifth biggest increase this year.

Gold Rally Stalls as Soon as Dollar Bounces
A dependency on a diminishing dollar appeal helped buoy gold following Tuesday’s NFPs, but that same relationship would translate the currency’s balance into a modest gold retreat. The 0.5 percent dip was the biggest in 8 active trading days, but didn’t necessarily threaten a bigger move at hand. The market is now looking to the 20-day moving average and previous resistance around $1,305 as the rough line in the sand for this current bullish effort. Volume in the futures and ETF markets were shallow befitting the price action. Meanwhile, open interest in the former derivative market continues to build from the four-year low set shortly after the Fed’s policy meeting. The 6.2 percent increase in exposure coincides with the first two-day increase in ETF holdings since September 6. Hardly evidence of a full-scale bull recovery, but supportive should a more significant driver come along – like a need for an alternative to a reserve currency (dollar, euro, yen).
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