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Yesterday’s better than expected US Q3 GDP has revitalized risk appetite; sending equity markets higher across Europe and the US yesterday, and providing positive momentum through to Asian indices overnight. The 3.5% annualized Q3 figures exceeded forecasts for 3.2%... and indicated the first expansion in the US since Q2 2008. In turn, EURUSD has rallied to test resistance around 1.4860 and gold has rebounded from its lows to settle above $1047. We feel this will continue to fuel risk correlated trades higher until officials indicate a shift in monetary policy stance; something which seems unlikely just yet with the labour market in such a dreadful state and growth having not yet proved itself without the aid of stimulus measures.

Overnight the BoJ voted to keep rates at 0.1% as expected, but they also announced their asset purchase programmes would be allowed to expire in December, a first stage in the withdrawal of stimulus. An unexpected drop in the Jobless Rate to 5.3% (5.6% expected, 5.5% prior) was also a key factor in the JPY strengthening against the USD from 91.60 to 90.80. Nevertheless, inflation figures indicated national CPI running at -2.2% YoY in Sep, which makes it unlikely the BoJ will be any closer to raising rates or tolerating a strong JPY any time soon.

Today’s key events from Europe will be the October HICP and Unemployment Rate. Currently the ECB are resolute that current rates are appropriate and inflation expectations remain ‘firmly anchored’. Consequently any unexpected increase in CPI (-0.1% YoY exp, -0.3% prior) would likely be a catalyst for speculation about a shift in ECB stance and be favourable to EURUSD climbing higher. However, the deflationary pressure of rising unemployment will also be an important factor to consider for the governing council, today’s reading is forecast to show a moderate uptick to 9.7% from 9.6% last month.

The US Session will provide Canadian Q3 GDP along with US PCE price index, Chicago PMI and U.Mich Consumer Confidence. The current mood of the markets will likely result in positive surprises fuelling USD selling, while downside misses (unless extreme) will have limited effect.