FOREX NEWS                                                              Newsforex.Net

Volatility continues to define equity markets as the Dow Jones Industrial Average has given up some of its gains heading into the afternoon. This follows relatively in line third quarter U.S. GDP data and weekly jobless claims released earlier in the morning.

The Dow Jones Industrial Average is up 96 points to 9087, the S&P 500 is up 12 points to 942 and the Nasdaq is up 19 points to 1676.

In Canada, Toronto’s S&P/TSX composite index is up 57 points to 9559.

European stock markets closed with the Eurostoxx down 2 points to 2263, the UK FTSE 100 up 49 points to 4291 and the German DAX up 136 points to 4945.

The advance Q3 U.S. GDP report came in slightly better than expected for the third quarter of 2008, contracting by 0.3% against expectations of a 0.5% decline, according to the Bureau of Economic Analysis. The previous month’s 2.8% growth was unrevised. In the report’s price index, personal consumption goods were up 5.4%, up from 4.3% in Q2, while the core figure that excludes food and energy advanced by 2.9%, following a 2.2% advance in Q2.

Initial claims for unemployment benefits in the United States held steady at 479k in the week ending Oct. 25, the Department of Labor reported. Continuing claims fell to 3.715 million for the week ending Oct. 18, lower than the 3.735 million expected.

Although equities are off their highs today, Bill McDonough, equities trader at Pacific American Securities, said he sees signs that could point to a bottom. He added he isn’t seeing the aggressive selling that happened earlier in the week.

Following the release of data from Canada and the U.S., the loonie is trending lower against its south-of-the-border counterpart after reaching a one-week high earlier on Thursday morning.

The advance U.S. GDP report came in slightly better than expected for the third quarter of 2008, contracting by 0.3% against expectations for a 0.5% decline. In addition, initial claims for unemployment benefits in the United States fell mostly in line with the consensus expectation, holding steady at 479k in the week ending Oct. 25. Claims were expected to come in at 475k.

The loonie, already off 0.8401 session highs, fell from 08336 levels when the data came out at 8:30 a.m. EDT.

With the U.S. dollar currently in the midst of paring losses, TD Securities economics strategist Millan Mulraine said the U.S. GDP result was indeed better than expected, but that it is still weak.

“It is now clear that U.S. economic activity has ground to a halt, and despite the aggressive monetary policy stimulus administered by the Fed and the various measures introduced by the U.S. federal government, the medium term outlook remains dire and should deteriorate further in Q4,” he wrote in a research note.

In a separate 8:30 a.m. EDT release, this time out of Canada, sharp declines in petroleum prices and mineral fuels were reported to have contributed to month-over-month weakening in prices for industrial products and raw materials in September. Canada’s Industrial Product Price Index (IPPI) fell 1.2%, while the Raw Material Price Index (RMPI) declined 7.2%. It was the second straight monthly drop for both indexes.

The Canadian dollar is currently stronger against major foreign currencies, but is nonetheless off highs following this morning’s data. The loonie is up 0.0053 to 0.6359 against the euro, up 0.0035 to 0.5028 against the British pound sterling and up 2.08 points to 81.66 against the Japanese yen.

Risk appetite continues to grow at the North American open as equities hold on to their gains following in line U.S. advance third quarter GDP and weekly jobless claims.

The advance U.S. GDP report came in slightly better than expected for the third quarter of 2008, contracting by 0.3% against expectations of a 0.5% decline, according to the Bureau of Economic Analysis. The previous month’s 2.8% growth was unrevised. In the report’s price index, personal consumption goods were up 5.4%, up from 4.3% in Q2, while the core figure that excludes food and energy advanced by 2.9%, following a 2.2% advance in Q2.

Initial claims for unemployment benefits in the United States held steady at 479k in the week ending Oct. 25, the Department of Labor reported. Continuing claims fell to 3.715 million for the week ending Oct. 18, lower than the 3.735 million expected.

U.S. equities are higher with Toronto’s S&P/TSX composite index up 220 points to 9721, the Dow Jones industrial average up 202 points to 9192, the S&P 500 up 25 points to 955 and the Nasdaq up 39 points to 1696.

European stock markets are also higher, with the Eurostoxx up 35 points to 2301, the UK FTSE 100 up 97 points to 4339 and the German DAX up 209 points to 5018.

Asian markets were higher, with the Japanese Nikkei closing up 818 points to 9030 and the Hang Seng Index up 1628 points to 14330.

The rise in equities is once again taking its toll on the U.S. dollar. Although the greenback is off its lows from earlier this morning, it continues to remain weak

Mostly in line third quarter GDP and weekly jobless claims data out of the U.S. Thursday morning provided a bit of a boost to the U.S. dollar, though it still remains lower against most majors.

The advance U.S. GDP report came in slightly better than expected for the third quarter of 2008, contracting by 0.3% against expectations for a 0.5% decline. Initial claims for unemployment benefits in the United States, meanwhile, fell mostly in line with the consensus expectation, holding steady at 479k in the week ending Oct. 25. Claims were expected to come in at 475k.

Despite the better-than-expected GDP result, HFE chief U.S. economist Ian Shepherdson advised clients to expect an “outright drop” in fourth-quarter GDP.

“This is the first of a run of negative GDP numbers; the economy is in recession. We tentatively expect GDP of -1% in Q4 and Q1 09,” he wrote in a reactionary email to clients.

The euro is up 0.0117 to 1.3078. It had been at 1.3116 at the time of the release, and following session-long gains dating back to the equity open in Asia overnight. The U.S. dollar is down 0.0223 to 1.2012 against the Canadian dollar. It had been at 1.2000 when the releases came out at 8:30 a.m. EDT.

The U.S. dollar is up 1.08 to 98.47 against the yen, following an initial 0.21-point spike higher to 98.63 on the data.

The dollar is down 0.0058 to 0.6050 against the pound sterling from 0.6040 levels at the time of the release. Against the Australian dollar, the greenback is down 0.0246 to 1.4721, following an initial 0.0056 drop lower to 1.4659 on the data.

EUR/USD up 0.0117 to 1.3078.
USD/JPY up 1.08 to 98.47.
USD/GBP down 0.0058 to 0.6050.
USD/CAD down 0.0223 to 1.2012.
USD/AUD down 0.0246 to 1.4721.

All data taken at 9:02 a.m. EDT.

While the euro is mixed against major foreign currencies on Thursday, it is up significantly against the U.S. dollar following a rally sparked overnight at the start of the Japanese equity open.

“Through Asian trade a powerful rally in equities gathered pace leaving local markets roughly 10% higher, European markets 1-3% higher and US stock futures up 3.5% after a broadly flat close in cash markets yesterday. Not surprisingly, the FX market response has been to push carry pairs higher and USD lower,” wrote RBC Capital Markets global head of FX strategy Adam Cole.

The Japanese Nikkei closed up 317.86 points to 9029.76 and the EUR/USD shot up 0.0115 to 1.3074 at 8 p.m. EDT last night off the session open overseas. The cross is now up 0.0174 to 1.3134. Cole added that the bearish U.S. dollar is also a product of residual market sentiment following the Federal Open Market Committee’s 50bp interest rate cut to 1.00% on Wednesday.

The euro is meanwhile down 0.0179 to 1.5682 against the Canadian dollar and down 0.0019 to 0.7897 against the British pound sterling. The EUR/GBP sustained a 0.0062 drop to session lows of 0.7870 following the release of euro zone confidence data. It had risen 0.0038 to 0.7956 on the Asian equity open.

The euro zone business climate indicator fell below expectations in October, coming in at -1.34 for the month, down from both the -0.91 reading expected and the previous -0.82 figure. Meanwhile, September’s figure was revised down from an initial reading of -0.79.

With the Bank of Japan Policy Board Meeting scheduled for later tonight, the euro is up 3.29 points to 129.53 against the yen. While a 25bp cut is expected to the current 0.50% Japanese rates, economists from Barclays Capital believe that will not necessarily be the case.

“According to our macro-quantitative model, a cut of that size would boost real GDP by 0.12% in the first year and 0.14% in the second year,” they wrote, arguing a boost of that size is relatively insignificant. “Whether this should be used at tomorrow’s meeting, leaving very limited room for further cuts, is the issue that the Policy Board members must wrestle with. In our view, this presents a high “psychological” hurdle to any decision to cut rates.”

EUR/USD up 0.0174 to 1.3134.
EUR/CAD down 0.0179 to 1.5682.
EUR/GBP down 0.0019 to 0.7897.
EUR/JPY up 3.29 points to 129.53.

All data taken at 6:48 a.m. EDT.

Australian dollar hit a one-week high above 66 cents against the U.S. dollar after Reserve Bank of Australia’s (RBA) Deputy Governor Ric Battellino gave a positive speech on the outlook for the domestic economy.

Su-Lin Ong, economist with RBC Capital Markets said the speech was buoyant for the Australian dollar, with Battellino saying there was “no line in the sand” for the Aussie currency and the RBA’s policy of intervention in forex markets during volatile times would continue. “The A$ rose 70 points during the Deputy Governor’s speech,” she said.

Battellino also said inflation levels in Australia could restrict the bank’s ability to cut interest rates further. He said growth could remain muted for the next two years, and unemployment will rise, but that it’s important to stay positive, given that Australia’s fundamentals are healthy.

Tomorrow, markets will receive another speech from the RBA, this time from assistant governor Guy Debelle on “Market Operations in the Past Year.”

The RBA will also release private sector credit figures for September. Shortly after, the Housing Industry Association will be releasing new home sales for September.

The euro was down 0.0125 to 1.9267 against the Australian dollar.

The Australian dollar was up 0.0092 to 0.6773 against the greenback.

A 50 basis point cut from the Federal Reserve led to a rollercoaster ride for equities in the final minutes of trading. Markets were unable to hold onto earlier gains and closed in modestly negative territory after negative comments from General Electric added to pessimism about the outlook for the US Economy.

The Dow Jones Industrial Average closed down 74 points to 8991, the S&P 500 closed down 10 points to 930 and the Nasdaq closed up 8 points to 1657.

The Federal Open Market Committee delivered what markets had largely expected, a 50 basis point cut to its target rate, bringing it to 1.00%. This is the lowest level in the target rate since 2003 and is aimed to promote economic growth, strengthen financial systems and increase liquidity.

Earlier in the day, the U.S. durable goods report for September saw the ex-transport figure fall less than expected and new orders rise.

The 50 basis point cut from the Fed was first seen as positive by equity markets. According to media reports, the last-minute drop in stocks was due to a drop in General Electric shares on comments regarding the company’s 2009 earnings. It was reported that Chief Executive Jeff Immelt said he wants the company to keep profits flat in 2009 even if their revenue falls as much as 15%.

Colin Cieszynski, market analyst from CMC Markets Canada, pointed out that although equities closed in negative territory, they weren’t down as much as they could have been. He said it looks like markets could be settling into a range.

“With this volatility, to be down 100 points in the Dow is no big deal,” he said, adding, “There were enough excuses to sell.”

Despite the Federal Open Market Committee’s rate cut on Wednesday, the Canadian dollar is falling from session highs against the U.S. dollar.

The Federal Reserve announced Wednesday that it unanimously voted to cut the Federal funds target rate by 50 bps, as was widely expected, to 1.00%. The accompanying statement said economic activity had decreased markedly from a decline in consumer expenditure.

The Canadian dollar is up 0.0292 to 0.8147 against the U.S. dollar. At its peak at 1 p.m. EDT, the CAD/USD was at 0.8242. It has since turned lower, but held relatively steady at 0.8160 levels since the announcement was made at 2:15 p.m. EDT.

CMC Markets chief FX strategist Ashraf Laidi said foreign exchange market reaction would depend on how equity markets took the news. Equities touched in negative territory but have rebounded slightly showing modest gains following the Fed decision. Currently the Dow is up 54 points to 9121, the S&P 500 is up 6 points to 945 and the NASDAQ is up 16 points to 1667.

“The high yielding AUD, NZD and GBP will be seen as the biggest losers in the event that markets sell off. In contrast, the Canadian dollar is expected to come out among the big winners in the event of protracted market gains as has been proven to be the case in the last 24-hours due to prospects of a widening in the reflationary trade,” Laidi wrote in a research note

Laidi added that the USD/CAD (1.2274) is expected to drop to 1.2100 by the weekend. On Tuesday, it had been as high as 1.3017 (0.7593).

Prior to the news, Custom House FX trader Tyson Wright said a 50bp cut might not have much of an impact on markets since it was largely expected. He added further that the U.S. dollar could continue to appreciate.

With an expected Federal Reserve cut looming, the U.S. dollar is promptly selling off against all major foreign currencies on Wednesday.

Expectations are for a 50bp cut to 1.00%. However, Fed fund futures are currently pricing in a 50% chance of a 75bp cut.

Regarding USD crosses, the euro is up 0.0230 to 1.2912 against the greenback, which, in turn, is down 0.31 points to 97.72 against the yen. The dollar is down 0.0185 to 0.6474 against the pound sterling and down 0.0583 to 1.2145 against the loonie. The biggest losses have come against the Australian dollar, with the USD/AUD down 0.0707 to 1.4886.

All major currencies, with notable exception to the yen, have been on a gradual incline since the morning. The USD/JPY has been trending higher since dropping to 0.9609 session lows at 1:15 a.m. EDT.

CMC Markets chief FX strategist Ashraf Laidi wrote that both the yen and U.S. dollar are likely to suffer as a result of a Fed cut.

“In the event that today’s Fed action is applauded by equities, we expect renewed selling in the dollar and the yen against European and antipodean currencies, but with the dollar likely to underperform the yen due to the deepening erosion on the dollar’s interest rate foundation. Only a [Bank of Japan] cut this week would prevent extended dollar underperformance of the yen,” he wrote in a research note.

Earlier today, rumours surfaced that the BOJ was preparing to cut current 0.50% interest rates at Friday’s regularly scheduled Policy Board meeting. In the meantime, the Fed’s decision is scheduled for 2:15 p.m. EDT.