Yesterday’s GDP-driven gains are a memory this morning: leading US equity indices lost ground in the pre-market and headed lower after the opening bell. Today’s data doesn’t seem to be helping or hindering; the final October U of Michigan ……
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<a bitly=”BITLY_PROCESSED” href=”http://www.dailyFX.com/forex/fundamental/forecast/weekly/usd/2009-10-30-2312-US_Dollar_Forecast_Remains_Bullish.html”>US Dollar Forecast Remains Bullish Ahead of Critical Economic Data
<a bitly=”BITLY_PROCESSED” href=”http://www.dailyFX.com/forex/fundamental/forecast/weekly/eur/2009-10-31-0153-Euro_Pullback_May_Turn_into.html”>Euro Pullback May Turn into Reversal Should Dollar Recover
<a bitly=”BITLY_PROCESSED” href=”http://www.dailyFX.com/forex/fundamental/forecast/weekly/jpy/2009-10-31-0356-Japanese_Yen_May_See_Consolidation.html”>Japanese Yen May See Consolidation Period Following Major Rally
<a href=”http://www.dailyFX.com/forex/fundamental/forecast/weekly/gbp/2009-10-31-0159-British_Pound_Assured_Volatility_as.html” bitly=”BITLY_PROCESSED”>British Pound Assured Volatility as BoE is Forced into a Policy Decision
<a href=”http://www.dailyFX.com/forex/fundamental/forecast/weekly/chf/2009-10-30-2306-Swiss_Franc_Likely_to_See.html” bitly=”BITLY_PROCESSED”>Swiss Franc Likely to See Major Breakout Versus Euro
<a href=”http://www.dailyFX.com/forex/fundamental/forecast/weekly/cad/2009-10-30-2303-Canadian_Dollar_Will_Find_Direction.html” bitly=”BITLY_PROCESSED”>Canadian Dollar Will Find Direction From Employment Data
<a href=”http://www.dailyFX.com/forex/fundamental/forecast/weekly/aud/2009-10-31-0336-Australian_Dollar_to_Look_Past.html” bitly=”BITLY_PROCESSED”>Australian Dollar to Look Past RBA Rate Hike, Trade on Risk
<a href=”http://www.dailyFX.com/forex/fundamental/forecast/weekly/nzd/2009-10-30-2318-New_Zealand_Dollar_To_Weaken.html” bitly=”BITLY_PROCESSED”>New Zealand Dollar To Weaken as Employment, Wage Growth Falter

For detailed analysis by currency pair, please visit our dedicated <a s_oc=”null” target=”_blank” href=”http://www.dailyFX.com:80/forex_market_news/forecasts/”>Forecast Page.

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Weekly key reversals/engulfing patterns in the EURUSD and EURJPY suggest a major sentiment shift in the FX market.

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<img hspace=”5″ height=”443″ width=”767″ vspace=”5″ id=”iimg_1471595180″ alt=”CAD10-30-09″ src=”http://www.dailyFX.com:80/export/story-images/2009/10/analyst_picks/debate/CAD10-30-09.gif” />
Canadian Dollar Will Find Direction From Employment Data

Fundamental Forecast for Canadian Dollar: Bearish

-    <a target=”_self” href=”http://www.dailyFX.com/forex/fundamental/article/drivers_of_price_action/2009-10-30-1636-Canadian_Dollar_Slumps_Following_Oil_s.html”>Canadian GDP Unexpectedly Contracts by 0.1% in August
-    <a target=”_self” href=”http://www.dailyFX.com/forex/fundamental/article/drivers_of_price_action/2009-10-30-1636-Canadian_Dollar_Slumps_Following_Oil_s.html”>Crude Prices Continue To Dictate “Loonie’s” Direction

The Canadian dollar fell to its lowest level in nearly a month against the greenback as broader risk aversion and weak growth figures helped erase early October gains. Canadian GDP unexpectedly fell in August by 0.1% disappointing economists who were looking for growth of 0.1%. Oil and gas extraction and, to a lesser extent, manufacturing were the main sources of the decline. The Canadian economy is expected to feed off of the global recovery and government stimulus. Therefore, the surprise contraction will weigh on the outlook for future growth but the lagging indicator’s relevance could diminish if upcoming fundamental readings continue to point toward a sustainable recovery. However, what may be of more concern for currency traders are the central bank’s continued talk of intervention. The verbal efforts may not be driving current weakness but could limit bullish sentiment going forward.

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<img hspace=”5″ height=”445″ width=”771″ vspace=”5″ src=”http://www.dailyFX.com:80/export/story-images/2009/10/analyst_picks/debate/NZD10-30-09.gif” alt=”NZD10-30-09″ id=”iimg_954150563″ />
New Zealand Dollar To Weaken as Employment, Wage Growth Falter

Fundamental Forecast for New Zealand Dollar: Bearish

?    <a href=”http://www.dailyFX.com/forex/market_alert/2009-10-28-2347-New_Zealand_Dollar_Tumbles_as.html” target=”_self”>Reserve Bank of New Zealand Holds Benchmark Interest Rate Steady
?    <a href=”http://www.dailyFX.com/forex/fundamental/daily_briefing/session_briefing/euro_open/2009-10-28-0558-Euro_May_Extend_Losses_as.html” target=”_self”>New Zealand Business Confidence Tips Lower in October
?    <a href=”http://www.dailyFX.com/forex/fundamental/daily_briefing/session_briefing/euro_open/2009-10-29-0642-US_Dollar_May_Extend_Gains.html” target=”_self”>Trade Deficit Narrows as Imports Tumble

The New Zealand dollar tumbled 3.75% against the greenback this week as investors scaled back expectations for higher interest rates in the 8B economy, and the currency may continue to face increased selling pressures in November as the economic docket is expected to reinforce fears of a protracted recovery in the isle-nation. The Reserve Bank of New Zealand held the benchmark interest rate at 2.50% this week and pledged to maintain borrowing costs at the record-low throughout the first-half of the following year in order to foster a sustainable recovery. The central bank saw “no urgency to begin withdrawing monetary policy stimulus” this month and held a dovish outlook for inflation as the board anticipates price growth to hold “comfortably within the target range over the medium term,” but noted that business spending along with credit lending remained “very subdued” throughout the region. Moreover, the RBNZ said that the marked appreciation in the exchange rate “has limited the scope” for an export-led recovery, and sees the current account deficit widening over the medium-term as global trade conditions remain far from favorable. As a result, Credit Suisse overnight index swaps shows investors see a 2% chance for a rate hike in December, while market participants speculate the RBNZ to raise borrowing costs by more than 200bp over the next 12-months, and uncertainties surrounding the economic recovery may continue to weigh on interest rate expectations as policy makers anticipate growth and inflation to remain subdued going into 2010.

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US dollar short positions and Euro long positions (speculative) have come off slightly from extreme levels, but Australian dollar long positions increased.

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<img hspace=”5″ height=”441″ width=”763″ vspace=”5″ src=”http://www.dailyFX.com:80/export/story-images/2009/10/analyst_picks/debate/USDTOF10-30-09.gif” alt=”USDTOF10-30-09″ id=”iimg_-754863116″ />
US Dollar Forecast Remains Bullish Ahead of Critical Economic Data

Fundamental Outlook for US Dollar: Bullish

-    <a href=”http://www.dailyFX.com/forex/fundamental/daily_briefing/session_briefing/daily_fundamentals/2009-10-30-2211-US_Dollar__Japanese_Yen_Dominate.html” target=”_self”>US Dollar rallies substantially on S&P 500 losses
-    Forex Options and <a href=”http://www.dailyFX.com/forex/technical/article/FX_options_forecast/2009-10-26-1921-Forex_Options_and_Futures_Support.html” target=”_self”>Futures continue to call for US Dollar bottom
-    <a href=”http://www.dailyFX.com/forex/fundamental/article/5_key_events/2009-10-30-1847-US_Dollar_to_Remain_Volatile.html” target=”_self”>US Dollar to remain volatile on Rate Decisions and NFP’s

The US Dollar finally showed signs of life through the past week of trading, setting a substantial low against the Euro and other key forex counterparts. An early-week tumble in the US S&P 500 and other financial risk sentiment barometers provided the spark for the dollar turnaround. Given extremely one-sided Dollar-bearish sentiment, it was little surprise to see the previously downtrodden currency continue mostly higher through Friday’s close. We have long argued that the Greenback was likely to establish a substantial low on overstretched market positioning. Of course, it is never profitable to be early on calls for major counter-trend moves. Yet the substantive week-long turnaround gives us reason to believe that the US Dollar has set a major low and will likely continue higher through end-of-year trading.

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Just before liquidity completely drained from the market, USDCAD pushed to fresh highs for the week. Looking at this pair’s performance this week, it has maintained its general bias for the past two-and-a-half weeks and closed a higher high through the last six active sessions.

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The EURGBP may have found a low and there is increasing evidence that the next significant (multi month) move in the Yen crosses is down.

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•    Euro, Swiss Franc Virtually Unchanged Despite SNB Intervention
•    British Pound Outlook Hinges Upon BOE Meeting Outcome and Status of Quantitative Easing
•    Australian Dollar Down with Other Carry Trades - Will the RBA Actually Raise Rates Again Next Week?

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