Currency Trading Update - 11/24/08

As of Friday’s close, the currency pair of choice remained GBP/JPY for contestants 1 and 3. While the major currency pairs generally remain in consolidation mode, Monday morning has brought some signs of breakouts following news that the US government had agreed on a rescue package for Citigroup. Since the news proved to be beneficial for stocks, as evidenced by strong gains in European shares and a solid open in the US, demand for carry trades has started to pick up as well.

With a good amount of event risk coming up during the next 24 hours, this moves could easily be extended or reversed, making it important for contestants to keep an eye on the news wires:

Asian Trading Session
11/25, 0:00 ET
Bank of Japan Monthly Report - While the Bank of Japan did leave rates steady last week at 0.30 percent, the markets will still be keeping an eye on their monthly report as a gauge of the Monetary Policy Committee’s bias going forward. The Cabinet Office’s assessment of the economy has already been downgraded amidst declining profits for exporters and deteriorating employment conditions, but BOJ Governor Masaaki Shirakawa has suggested that he wanted to avoid a return to Zero Interest Rate Policy (ZIRP), as additional rate cuts “would have many adverse effects on the functioning of the money market.” Any shift in the BOJ’s stance could spur volatility in the markets, though the news isn’t likely to trigger major directional moves.

European Trading Session
11/25, 2:00 ET
German GDP (3Q F) – The final reading of third quarter German GDP is anticipated to confirm that Europe’s largest economy is experiencing its worst recession in at least 12 years. Indeed, the preliminary results showed that GDP fell 0.5 percent in the third quarter from the previous quarter, following a 0.4 percent contracting. The combination of restrictive monetary policy in the Euro-zone along with slowing growth in other regions has taken a toll on both domestic and foreign demand, which is particularly problematic for this export-dependent economy. If GDP happens to fall more than forecasted, the news could weigh on the euro as it would add to speculation that the European Central Bank will cut rates aggressively next week. However, if the data meets expectations, there may be little reaction in the forex markets.

US Trading Session
11/25, 8:30 ET
Canadian Retail Sales (SEP) - Consumer spending in Canada is expected to have gained 0.4 percent in September, and excluding autos, retail sales are forecasted to have risen 0.2 percent. However, there is potential for a surprisingly strong reading given the solid employment numbers we’ve seen lately. In fact, the Canadian economy has added on workers for the past three months, and a record 106.9K in September alone. Furthermore, the September reading of Canadian wholesale sales surprisingly jumped 1.5 percent, and can sometimes serve as a good leading indicator for the headline retail sales report. As a result, this 8:30 ET release has the potential to lead the Canadian dollar higher, though a disappointing figure could weigh the Loonie down.

11/25, 8:30 ET
US GDP Annualized (QoQ) (3Q P) – While the advanced reading of US GDP for the third quarter was initially “better than expected”, it is now anticipated to be revised even lower at 8:30 ET. Indeed, annualized GDP is forecasted to be modified down to -0.5 percent from -0.3 percent, while personal consumption is expected to be corrected to -3.2 percent from -3.1 percent. However, it will likely take a surprisingly low result to illicit any sort of reaction from the markets, as traders are already well aware that economic conditions in the US remain dismal.

11/25, 10:00 ET

US Consumer Confidence (NOV) - The Conference Board’s consumer confidence index is forecasted to hold at it’s record low of 38.0 reached just last month, though given the gloomy outlook for the economy, there may be downside risks. The key here will be to gauge the impact of the news on risk trends, as disappointing data could trigger flight-to-quality and thus, US dollar buying. On the flip side, readings in line with expectations shouldn’t have a huge impact.