Traders will be anxious over the weekend as financial turmoil once again dominates the markets and data takes a back seat. The U.S. Thanksgiving holiday will also impact trading this week as markets will be closed Thursday and Friday.
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Less than two weeks after slashing its overnight lending rate 50 basis points as part of a concerted action by central banks around the world, the Bank of Canada may cut its key lending rate a further 50 basis points to 2% at its next meeting, economists say.

With the U.S. economic outlook darkening and prospects for Canadian exports dampened, several economists say there are plenty of reasons for the bank to lower the key rate again at its next policy meeting on Oct. 21.

“We’re saying the Bank of Canada will cut by 50 basis points and that’s it and then it stays there at least until the end of 2009. The point now is if indeed it appears the Canadian economy is slowing rapidly because of the darkening outlook in the U.S. there’s no point in waiting,” said Laurentian Bank chief economist Carlos Leitao. “If there is a need to cut the time is now, not later on, even with the lags involved in these things.”

TD economist Pascal Gauthier said the most recent manufacturing sales report was “dismal,” and while the employment report from Statistics Canada surprised with a big employment gain of 107,000 jobs, Gauthier believes it was likely an anomaly.
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Action Insight Daily Report
Dollar and yen are generally higher today as global stock markets tumble following DOW’s 678pts fall to 8579. Niikkei dropped nearly another 10% to 8276, having the worse weekly drop in history after a 98 year old Japanese insure Yamato Life files for bankruptcy. European stock markets also open sharply lower with FTSE 100, DAX and CAC 40 dropping nearly 10%. Dollar index resumes recent rally and climbs to as high as 81.91 so far. Crude oil tumbles another 5% to 82 level while gold climbs over 3% to above 930.

AUD/USD and AUD/JPY are the biggest loser today so far but are still holding above this week’s low. The more important developments these few days are the persistent weaknesses in Sterling and Canadian Dollar. Sterling is pressured by concern that UK-Iceland assets row may escalate further. The two nations are tussling over on who should compensate British savers with money locked in Icelandic banks after the system collapsed. Prime Minister Gordon Brown said UK may freeze the assets of Icelandic companies using anti-terrorism laws. GBP/USD took out 1.7047 key medium term support and falls to as low as 1.6786 so far. GBP/JPY drops to as low as 165.91. EUR/GBP is back above 0.8 level. USD/CAD on the other hand, surges sharply to as high as 1.1647 on falling oil prices. Euro is sold off sharply in EUR/CHF with the cross breaking Mar’s low of 1.5331 and diving to as low as 1.5167 so far. Though, the common currency remains relatively steady against dollar and yen.

On the economic data front, Swiss unemployment rate was unchanged at 2.4% in Sep. Main focus is on Canadian job report which is expected to show unemployment rate up to 6.2% in Sep, with 11k jobs added. Canadian and US trade balance will also be featured. Nevertheless, economic data will likely continue to take a back seat and focus remains on development in the global financial crisis. Also, attention will be on the G7 meeting which begins on Friday, followed by annual IMF/World Bank meeting from Oct 11-13.
By ActionForex

Action Insight Mid-Day Report
Dollar’s rally extends further in early US session despite much weaker than expected employment report. Non-farm payroll report showed -159k contraction in the job market in US in the month of Sep, far worse than expectation of -100k, and was the biggest fall since Mar 03. The total job loss in Q3 after revisions added up to -299k, much higher than Q2’s 214k. Unemployment rate remains elevated at 6.1%. Average hourly earnings rose 0.2% mom but average weekly hours dropped -0.3% mom. ISM non-manufacturing index will be released later in the US session and markets’ focus will also be on result of House vote on the $700b bailout plan.

Technically speaking, note that dollar’s strength is particularly apparent against Euro and Canadian dollar. EUR/USD breaks through yesterday’s low and dives further to as low as 1.3706 so far. USD/CAD is boosted further by sharp fall in oil prices to below 92 level. USD/CAD finally takes out 1.0819 resistance and confirms that medium term rise from 0.9056 has resumed.

Other data released today include UK Services PMI which fell to record low of 46 in Sep. Eurozone retail sales rose 0.3% mom, dropped -1.8% yoy in Aug. Eurozone Services PMI was revised higher to 48.4 in Sep. Swiss CPI rose 0.1% mom 2.9% yoy in Sep, above expectation of -0.1% mom, 2.7% yoy.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.0661; (P) 1.0734; (R1) 1.0858

USD/CAD surges to as high as 1.0841 in early US session and at this point, intraday bias remains on the upside as long as 1.0750 minor support holds. As discussed before, sustained trading above resistance zone of 1.0791/98 and 1.0819 high will confirm that medium term rise from 0.9056 has resumed. Next short term target is now 61.8% projection of 0.9823 to 1.0819 from 1.0297 at 1.0913. On the downside, below 1.0750 will turn intraday outlook neutral first and bring retreat. But downside should be contained above 1.0546 support and bring rally resumption.

In the bigger picture, sustained trading above 1.0791/98 (61.8% retracement of 1.1874 to 0.9056 at 1.0798, 61.8% projection of 0.9056 to 1.0378 from 0.9974 at 1.0791) will confirm that medium rise from 0.9056 has resumed. Also, this will be an important indication that the rise from 0.9056 is more than a correction to the long term down trend from 1.6196. Next medium term focus will be on 1.1874 resistance. On the downside, Below 1.0297 is needed to be the first signal that a top is formed. Otherwise, further rally is still in favor even in case of deep pullback.

Action Insight Mid-Day Report
Dollar remains generally weak across the board in early US session with dollar index pressing 77 level. Most major currencies extend gains against the greenback as expected and such trend will like continue in near term. In particular, the USD/CAD is now trying to take out 1.0410 key near term support level on the back of strength in oil prices. Markets are still accessing the impact of US government’s $700b bailout plan to the economy but it’s generally agreed that the widened budget deficit is negative to the dollar.

Data released from Canada saw Jul retail sales rose 0.1% in mom while ex-auto sales rose 0.4%. UK rightmove house prices dropped -1.0% mom in Sep with yoy rate -3.3%. Japanese all industry index rose 0.8% in Jul as expected. Taro Aso was elected president of Japan’s ruling LDP and will likely succeed Yasuo Fukuda as the Prime Minister of Japan. Other news said Nomura is close to acquiring Lehman’s European Units, Mitsubishi UFJ will invest up to $8.4b in Morgan Stanley.

BoJ minutes released showed members generally agreed that US economic outlook is considerably uncertain. “Members shared the view that global financial markets remained unstable due mainly to concerns about further losses that U.S. and European financial institutions might incur”. Also, “members agreed that there was considerable uncertainty regarding when and how the negative-feedback loop between financial markets, asset prices and economic activity would diminish.”

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(CEP News) - Responding to a series of extraordinary events that took place over the weekend, the Bank of Canada pledged to continue closely monitoring the developments, but said it wouldn’t speculate as to how these events would impact the Canadian economy.

“Although credit conditions in Canada remain challenging, they are better in many respects than those in other major markets,” said a BOC spokesperson. “The financial system in Canada remains sound.”

It was announced late Sunday night that Lehman Brothers was filing for bankruptcy, that Bank of America was taking over Merrill Lynch, and that the Fed broadening the collateral accepted at its various lending facilities.

“The Bank welcomes the initiatives of the Federal Reserve System to provide support to U.S. financial markets,” reads a statement on the Bank of Canada’s web site.

The BOC also pledged to continue providing liquidity as necessary to ensure the functioning of financial markets, but made no mention as to whether additional extraordinary measures would be taken at the present time.

Lehman Brothers Holdings Inc, founded in 1850, filed for Chapter 11 Bankruptcy just after midnight EDT. The filing, which will not include its broker-dealer subsidiaries or other units, including Neuberger Berman, marks the first bankruptcy of a Wall Street firm in nearly 20 years.
Minutes after the announcement, Bank of America announced it will acquire the world’s biggest brokerage firm, Merrill Lynch & Co. for $50 billion U.S.

The Bank said it would pay $29 a share for the firm, a 70% premium to Merrill’s share price based on Friday’s closing price. The transaction is set to close in the first quarter of 2009, and three directors of Merrill will be joining the Bank of America board.

By Erik Kevin Franco

(CEP News) - The week starts to pick up on Thursday with the release of U.S. and Canadian trade data, along with the U.S. weekly jobless claims and Canada’s new house price index.

The U.S. trade balance is expected to show a deficit of $58.0 billion, following June’s deficit of $56.8 billion. Economists are expecting the deficit to widen to between $54.6B and $62.5B.

Economists from Global Insight are forecasting the trade deficit to widen to $61.5 billion, largely on account of a $3.0 billion increase in the bill for imported oil, driven by higher crude oil prices.

Scotia Capital economist Karen Cordes said softer commodity prices create mixed implications in the trade report.” If the quantity of imports was the same as last month, then the nominal value of imports will have declined; but weaker prices abroad, combined with a stronger dollar at home, increase the incentive to import,” she said. “Thus, it is difficult to say whether the value of the import index will move up or down in July.”

The U.S. federal government will also release its monthly budget statement for August, which is expected to show a deficit of $107.3 billion following July’s deficit of $117.0 billion.

Initial Jobless claims are expected to remain elevated, with the consensus forecasting initial jobless claims to come in at 440K, slightly lower than the prior week’s 444K result.

After last week’s report, economics strategist Ian Pollick from TD Securities said, “While we know the number remains elevated due to economic weakness, we did expect to see a fall in the series in recent weeks. That has not materialized since eligible applicants should have already taken advantage of the benefits extension. It is becoming more apparent that there is real weakness.”
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(CEP News) Ottawa - The value of building permits issued by Canadian municipalities snapped back in July, increasing 1.8% from the previous month, Statistics Canada reported Monday.
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(CEP News) Ottawa - July will likely have seen a significant decline in building intentions, economists say. Although economists differ on the degree of the decline, they agree residential permits will be the weak spot.
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(CEP News)- The week begins with European Central bank member Jürgen Stark speaking in Denmark while Dallas Fed President Richard Fisher, a noted hawk, will be speaking in Austin, Texas in the afternoon. Canadian investors will see how housing is holding up with release of building permits for July while U.S. investors will be looking forward to the release of consumer credit statistics for July.
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