Click here for PDF version

NZDUSD<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Carry traders were out in full force in the North American session, bidding up the commodity currency in line with profit taking on the previous weeks decline.  Previously breaking technical levels at the 0.6600 and 0.6550 figure, the underlying currency pair has found support from dollar weakness even as a wider deficit continues to boost pessimism for Kiwi growth.  According to the mornings release of the ISM manufacturing survey, sector activity dipped to a 52.9 reading from the 54.4 witnessed in August.  The figure also comes well below the consensus estimate of 56.  Although the reading remains above the 50 minimum suggestion of sector expansion, the most recent print is a considerable downward adjustment, in line with the recent downtrend as the report has declined twice out of the last three months.  In this case, the report simply confirms the overall notion of a slowdown in the worlds largest economy and will likely keep policymakers considering the prospects of a potential rate cut in the first quarter of 2007.

Next up for the Kiwi will be the ANZ commodity price report.  Expected to show increases on the month, the report may add little to the underlying currency as sentiment remains suppressed by a widening trade deficit.  However, with inflationary pressures likely to boost interest rate speculation, a positive reading may very well boost the Kiwi in the short term.

GBPUSD

Pound sterling prospects continue to be upbeat following this mornings PMI report.  Although taking a beating last week on an admitted error by the Office of National Statistics, the British pound rebounded in the overnight as manufacturing figures continue to suggest further rate hikes.  In the month of September, the manufacturing report printed higher at a 54.4, eclipsing the decline to 53 expected by the consensus.  Rising above the 53.1 release in the previous month, the September report saw manufacturing production increases not witnessed since July of 2004 as new orders rose for the sixteenth consecutive month.  Boosted by both increased demand in the investment and consumer sectors, the figure is likely to spur a reversal in sentiment following bearish undertones set by the ONSs error last week.  Now with viable evidence of inflationary causation, market participants continue to price in a likelihood of 25 more basis points before yearend.  Futures contracts remain even more optimistic as some are looking for 50 basis points as Bank of England members continue to remain focused on curbing any potential inflation in the region.

Forming a double bottom on the 1.8650, the pound sterling has rebounded off of support from the massive bloodletting that occurred in the previous week.  Penetrating both the 1.8803 (38.2 percent fib from the weeks decline) and 1.8740 (23.6 percent fib of the aforementioned move) on the 60-minute timeframe, price action currently hovers over the 1.8855 figure, consolidating into the Asian session.  Slightly overextended, the Stochastic reads a potential decline on a death cross in the overnight as traders are likely to pare back gains made on the jump.  The notion is setting bears up for a test of support at the 1.8762 (50 percent fib from the days advance) with 1.8790 being a thin barrier.  Upside potential cannot be precluded as further momentum will likely see upside breach of the 1.8900. 

USDCHF

Aside from lackluster data spurring on Dollar Bears, Swiss demand was out on the session despite a worse than expected SVME PMI survey.  According to the report, activity remains strong in the Swiss economy even as the reading declined to a lower than expected 64.4 reading for the month.  Compared against expectations of a 66 consensus estimate, the figure remains above the 50 minimum expansionary reading and continues to purport the fact that the economy remains well above the minimum for almost three years running as foreign global demand remains buoyed.  Lending even more strength to the underlying currency was the SECO September 2006 Economic Forecasts report.  Boosting further prospects for Swissie strength, the Swiss state secretariat for economic affairs reaffirmed its forecast of 2.7 percent overall growth in 2006 and revised a 1.5 percent pace in 2007 to 1.7 percent.   Even more strengthening were the prospects of further increases in employment prospects as inflationary pressures are expected to thin out in the coming year.  With consumer price inflation likely to decline to 1 percent in 2007, the national unemployment rate is subsequently expected to dip, standing at 3.3 percent for 2006 and lower to 2.8 percent next year.  All reports boost the likelihood that the economy will continue on its positive pace of late, supporting the likelihood that rate may rise before year end.

Consolidating after the days move, the underlying price action is likely to pare back on profit taking as it finds support on the 1.2400 handle (61.8 percent fib from the 9/25-9/29 bull move).  Stalling just below the 1.2432 on the 60-minute shot, further momentum is likely as it coincides with the golden cross in the Stochastic oscillator.  Should floodgates be open to the bullish onslaught, the market will be eyeing the 1.2465 resistance as the next barrier with gains likely to be capped just below the 1.2500.