Risk Appetite Wanes Ahead Of US Election

Risk Appetite Wanes Ahead Of US Election


USD held on to earlier gains as markets continued to avoid excessive risk. Asia regional indices were lower (following WS's difficult performance on Friday) with the Nikkei down -0.48%, Hang Seng -0.32 and Shanghai -0.14%. With the US elections just a day away, investors are not taking any chances. The most recent polls show President Barack Obama and Republican challenger Mitt Romney tied within the stand deviations error and the uncertainty prompting traders to hold their fire while they await clearer direction. EURUSD has been under selling pressure since the open. The pair opened at 1.2840 and immediately dropped to 1.2808 before grinding back to 1.2840. However the bulls could not hold the gain and the EURUSD is again threating the 1.2800 handle. There were a series of Europe negative reports that weighed on the EUR. Including news that Greek aid talks will last until the end of November, inching very close to the point when the nation runs out of money. In addition, the Greek government will present a new austerity package to parliament today, which should, if passed clear the way for the release of the Troikas aid. However, the erosion of the people's tolerance of deeper austerity has become evident and these new measures will surely kick-off further protests and strikes. U.S. 10-year Treasuries held steady while Brent inched up after a massive 2% collapse on Friday.

The G20 meeting failed to generate any headlines and closed quietly. Perhaps the key take away was the forcefulness of Japan's Finance Minister Jojima who used the opportunity to reiterate that JPY strength was well out of line with fundamentals and would damage the domestic economy if not managed. In addition, BoJ Governor Shirakawa stated his opinion on political matters in the US saying that he expected US politicians to handle the “fiscal cliff” issue shortly after the US election. Post better-than-expected NFPs last week the USJPY broker barriers at 80.50 trading up to 80.67 but with weekly cloud cover ahead, the pair could not hold gains and we traded down to 80.29 in Asia. AUDUSD continued to feel selling pressure as demand for commodities wane and yield seekers take a back seat to risk aversion.

Data reported from Australia showed Sept trade deficit A$1.456 bln, vs. A$1.647 bln exports while retail sales rose 0.5% m/m, vs. -0.2% exp. The narrower than expected trade deficits, stronger retail sales and local newspaper articles that indicated that Tuesday RBA expected decision to cut rates was a close call, did monetarily give the AUD strength. We would expect trading to be subdued today (ie. trade the range) with the US election and three major central banks (RBA, ECB and BoE) all on the docket.