Morning Wrap for Monday November 8, 2010

The USD Dead Cat Bounce Continues - The resurfacing of concerns about euro zone peripheral debt has put a firm bid under the USD against the Euro. The concerns over Greece have receded a bit as local elections show that Prime Minister George Papandreou's Socialists have held their own. Ahead of local and regional elections on Sunday, Papandreou had urged the electorate to give his government the mandate to press ahead with its unpopular austerity measures or else he threaten to dissolve parliament and call a snap election. Meanwhile, concerns over Ireland intensified after the Irish government laid out a plan last week to cut spending and raise taxes by as much as 6 billion euros ($8.4 billion) in 2011. The market doesn't think the plan will be attainable as a wave of mortgage losses increase the cost of rescuing the nation’s lenders. Also hampering the Euro, Germany reported surprisingly weak industrial output as industrial production fell 0.8% in September while the consensus forecast was for a 0.4%-0.5% rise. These concern helped to shift the market's attention from the  Fed's QE 2.0 to the euro zone - for how long? My guess would be at least until after this weekend's G20 summit meeting in Seoul, which may address imbalances. In Asia, the Yen remained in a tight range versus the USD as Japanese officials continued with their verbal intervention. "We must work to prevent (a sustained rise in the yen), but in the meantime, there are advantages of yen rises," Yoshihiko Noda, Japan's finance minister, said Monday during a parliamentary session. "Moves such as purchasing foreign assets as well as foreign companies should be actively pursued," as gains in the Japanese currency make them cheaper, he said. As you can see by his comments that he was very political ahead of the G20 meeting. In Canada, the CAD has back off parity as the focus of the markets changed from QE 2.0 to the euro zone and on lower commodity prices. This week's domestic news include September figures for the new housing price index and trade; and a speech by Bank of Canada Governor Mark Carney on Tuesday in Geneva on Canada and global financial reform.