Meltdown in the Euro (page 2 of 2)

Next week, the tables should turn as we expect much more important UK numbers. The data on the UK calendar includes consumer prices, the minutes from the last monetary policy meeting, the current account balance, mortgage approvals, money supply and retail sales. The Bank of England minutes will be particularly interesting because even though the BoE lowered interest rates for the first in 2 years earlier this month, the statement was not dovish. The fate of the British pound will be dependent upon how soon the BoE will cut interest rates again, if at all. Keep an eye on the voting record because a small majority in favor of the rate cut would signal a nice pause before the next move while a unanimous vote would boost expectations for another rate cut in January.

US Equities Erase Gain, Taking Carry Trades Down With It
Over the past two trading days, US equities have struggled to gain ground and failed to do so despite a groundbreaking announcement by central banks around the world. Today the bulls have finally given up, paving the way for stocks to close at a weekly low. Even though the Tankan report last night was much weaker than expected, Yen weakness was only sustained against the US dollar. Instead, risk appetite once again dominated Yen trading erasing all of the prior gains in the Yen crosses. The big event risk next week is the Bank of Japan interest rate decision - unfortunately, we do not expect much volatility from the decision because the BoJ has and will continue to leave interest rates unchanged for the foreseeable future.

Continued Weakness in the Australian, New Zealand and Canadian Dollars
The Australian, New Zealand and Canadian dollars continued to sell-off today despite the lack of meaningful economic data. This was due entirely to dollar strength and general liquidation out of high yielding currencies. Next week, the commodity currencies could finally get a life of their own thanks to a heavy economic calendar. We are expecting the minutes from the last Reserve Bank of Australia monetary policy meeting, the New Zealand current account balance, third quarter GDP and Canadian consumer prices. We expect most of these event risks to be negative for the commodity currencies which goes in the line with the current technical outlook for these pairs. Support has been broken which suggests further losses.