Bob's Currency Focus 12:00 GMT

EUR/USD
Friday’s euro rebound proved to have been a false move and with the positive US payrolls report continuing to boost the dollar ahead of tonight’s FOMC minutes release, the euro has been pushed to as low as 1.4014 Tuesday morning. We’re likely to be in a narrow range (1.410 – 1.4050) up until the minutes come out at 18:00GMT. The likelihood is that the minutes will dampen expectations of a further rate cut in October, especially given Friday’s boost in employment, so we should see the dollar try to take out 1.40 this evening and if it pushes below 1.3980, we could see a decline right back to 1.39, even tonight. If the minutes are favourable towards the greenback and the currency fails to take advantage – i.e. does not break or hold below 1.40, then we could witness the sort of negative sentiment backlash that we saw on Friday, with the euro bouncing strongly back up to 1.41. The biggest danger to the dollar this evening is if the Fed minutes reflect a serious downgrading to US growth prospects, which could trigger a rapid dollar sell-off and see the euro back up at 1.4130 by the time we get to discuss the pair again tomorrow.

GBP
Cable has slipped further this morning, falling to 2.0283, ahead of a budget statement by the Chancellor of the Exchequer at 14:30 GMT. The data out of the UK was good this morning, with the trade deficit having narrowed (albeit against a higher than originally forecast July number), while the British Retail Consortium reported that retail sales rose much more than expected in September. Add to this the NEISR GDP forecast of 0.7% for quarter 3 and it would tend to suggest that the rumours of the economy’s demise might be somewhat exaggerated. Sterling is being sold off on the fear the UK Government may reduce the country’s growth forecast in today’s Parliamentary budget presentation. You could have made up to 100 pips had you followed my assessment yesterday. Cable’s current price I do not like as I still maintain a downside bias, but any rebound back towards 2.04 should offer a good sell opportunity. Sterling has also weakened against the euro today, but I would be inclined to sell from any euro rallies back up towards 0.6950, with a target price of 0.69.

JPY
The yen has strengthened across the board Tuesday, as markets are wary of selling the currency too aggressively ahead of Thursday’s interest rate announcement. Although the Bank of Japan is unlikely to raise rates, the sharp sell-off of the currency in the past 3 weeks has brought about a temporary air of caution. Domestic data out of Japan today was poor, with the country’s economy watcher’s confidence survey slipping even further in September to 42.9 from 44.1 a month earlier – well below the boom or bust 50 point level. The dollar managed to hit 117.60 against the yen Monday before retreating modestly but the yen has held the upper hand Tuesday and the pair has gone as low as 117.03. Any price around or just below 117 offers a good buy opportunity, with 117.50 a fairly easy target. 118 is a possibility tonight if the Fed minutes spur a major dollar rally. A broad recovery in stock markets Tuesday could also see the yen slip back to 1.65 against the euro.

CAD
I said yesterday that the loonie had the potential to correct quickly to 0.99 against the USD and this morning the pair hit 0.9895. Oil prices fell back sharply Monday and are down again in trading Tuesday and a fall in oil prices could help to extend the correction to 0.9950, with the possibility of a near-term move back to parity, if the US Fed minutes dampen expectations of further US rate cuts and we see a broader decline in commodity prices. Canada’s housing starts data for September have just come in 60K above expectations – up nearly 20% from August and is a reminder to would-be CAD sellers, like me, just how firm the domestic economy is right now. Tomorrow we will look in more detail at the CAD crosses, once the Fed minutes are out of the way.

Bob B - Oct 9