The US Dollar traded higher against other top currencies in overnight trading as stock markets declined in Asia with traders cautious ahead of a week of third-quarter earnings reports from top global companies. More of the same is likely in European hours with little of note on the economic calendar.
Key Overnight Developments
• Fed’s Bullard Says Rates to Stay Near Zero ‘For a While’, Unemployment May Top 10%
• New Zealand Annual House Prices Fell Least in 14 Months in September, Says QV
Critical Levels
The Euro fell as much as -0.4% and the British Pound followed, testing as low as 1.5811 to the US Dollar. The greenback added as much as 0.3% on average against six of its top counterparts as stocks slipped across most Asian exchanges with traders treading carefully ahead of the first full week of third-quarter earnings reports. We remain short GBPUSD at 1.6617 and EURUSD at 1.4710.
Asia Session Highlights
The Federal Reserve’s James Bullard, head of the central bank’s St. Louis regional branch, said US interest rates may remain near zero “for a while” as the labor market remains “very weak”, with high unemployment being the ultimate measure of stress in the economy. Bullard speculated that although unemployment has been “leveling off”, a push above 10% remains possible. The St. Louis Fed chief added that he sees clear problems in commercial real estate.
New Zealand’s House Prices fell -1.1% in the year to September to register the smallest decline in 14 months according to Quotable Value (QV), the government-owned property information service. On a monthly basis, prices grew 0.6% from August to clock in the fifth consecutive period of gains. The report noted “signs of more activity [with] strong competition among keen buyers in some localities”. Low supply rather than robust may be behind the recent gains however. Indeed, QV valuation manager Glenda Whitehead said “There is still a feeling that activity levels are below normal, with somewhat fewer listing to date than was expected.” Still, QV said a separate survey of households showed that a majority of those polled thought house prices would rise over the coming year and more of them were considering selling their homes in the next six months.
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Euro Session: What to Expect
With nothing of note on the economic calendar, currency markets may take cues from risk sentiment to drive price action. Anticipation of the third quarter earnings season may be the top concern for traders at the moment, and the results from Europe’s biggest consumer-electronics manufacturer Royal Philips Electronics NV released ahead of the opening bell hint at ample reasons to be worried. While the company’s earnings firmly beat analysts’ estimates, sales fell 11% from the second quarter and CEO Gerard Kleisterlee said the results reflected the “proactive manner in which we have been managing our costs.” Also substantial, the earnings report said that double digit growth in emerging markets was not fully offsetting declines in US demand. On Balance, this is a troubling picture: cost-cutting can only support profits for so long without growth in underlying demand, while a dependence on US buying suggests the recent positive news from China and other emerging markets may not be enough to keep driving the early stabilization in global growth that has been driving risky assets over recent months. If Philips proves to be a indicative of what traders can expect throughout this latest round of earnings reports, a turn lower in risk appetite may be ahead, boosting the safety-linked US Dollar and Japanese Yen.
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