USD/JPY

Traders Disregard: Dollar traders brushed aside the record setting trade deficit today focusing rather on interest rates in the near term future.  The trade balance for the month rose to a record $66.1 billion on rising imports and a higher volume of petroleum and petroleum products.  Coupled with lofty energy prices, the figure crushes the previous record of $60.4 billion set in the month of February.  Lending to the dollar push, traders linked most of the increase to the devastation from Hurricanes Katrina and Rita.  Shutting down oil refineries in the Gulf region, the hurricanes forced consumers to increase their demand from other sources, namely foreign countries outside of the economy.

Dour Data For Japan: The sole release for the session, traders observed a larger than expected dip in the most recent machine orders report.  Expected to dip 6 percent in the month of September, the release declined 10 percent and reversed the 8.2 percent rise in the previous month.  Known for its volatility the figure was lightly regarded on the session with most of the focus being turned on expectations of the upcoming gross domestic product report.  Expected to to show a 0.1 percent rise, the figure contributes to the notion that growth slowed in the recent months leading up to September.  This now places the annualized figure below the previously witnessed 2.5 percent to a 1.7 percent expansion.
 
Technically Speaking: Taking into consideration the recent fundamental bias, plenty of upside room remains for the major currency.  Bouncing off of the 38.2 percent fib level at 116.96, the underlying price action looks headed to test the upper trendline of the longer term channel.  Capping doesn't look probable till the 118.50 ceiling.

AUD/CAD

Aussie Inflation Looks To Be Contained: Today's economic releases lend to the notion that the Reserve Bank of Australia may not be as forthcoming with interest rate increases as widely expected.  The Australian Bureau of Statistics reported a decline in employment for the month of October, to the tune of 19,800.  Falling lower than the expected 15,000 gain, this is the second consecutive month of declines, the first time since June and July of 2003.  As a result, the unemployment rate increased to 5.2 percent and suggests a softening of the previously tight labor market.  Inflationary pressures also seem to weaken, expected to be contained in 2006.  According to the Melbourne Institute, consumer inflation expectations for the November survey rose to 21.7 percent.  Increasing from only 15.3 percent the previous month, inflation is widely expected to remain within the RBA's 2-3 percent benchmark target. 

Carry Traders Corner: Even with the overnight cash rate expected to stay at 5.5 percent, traders bid the cross higher as carry trade potential still remains with a differential of 250 basis points.    Given the above inflationary expectations, however, look for the cross to continue its range bound environment in the near term as traders weigh rate expectations in both economies.  Adding to downward pressure on the loonie, oil prices receded today on a pessimistic IEA energy report.  The international agency stated that crude oil demand looked to be curbed in 2006 for the fourth consecutive month as refinery activity looks to also rebound in the Gulf region.  The front month contract finished down at $57.66.

Technically Speaking: Continuing the staid range environment, the pair looks to be subject of a interest rate tug o war.  As a result, expectations for the cross to remain in the current range run high as the short term move looks to be capped by the previous support at 0.8688, the 38.2 percent fib level.

EUR/USD

Dour Data For The Eurozone: Multiple reports released on the day reflected the trying times of the euro zone economy.  First and foremost, economic figures were rather disappointing out of the French economy.  Industrial production rose less than expected at a paltry 0.2 percent as consumer price inflation declined 0.1 percent for the month of October.  The recent figures contradict, at least in the short term, statements by policy makers that inflation persists in the region, leading to higher interest rate potential.  Additionally contributing, policy makers in Germany, the region's largest economy, passed new tax legislation into effect.  Angering business owners and corporations, the coalition government raised the Value Added Tax from 16 to 19 percent in addition to raising the 3 percent “wealth tax” in efforts to reduce the budget deficit.  The latest move by the new government has prompted experts to dub the future as an “economic disaster” as the tax would most likely curb domestic spending in a time when consumption remains thin.

Technically Speaking: Continuing on the downward channel that has existed over the past few sessions, further selling pressure looks to ensue as the near term support level has been broken at 1.1711.  Finding a temporary bottom, the break coincides with further continuation of the aforementioned channel with no hopes of cappage until the 1.1600 figure.  Near term upside swings would be tested at the previous support.

Richard Lee is a Currency Strategist at FXCM.