Abe Takes the Shine

Japanese Yen takes the spot light as snap elections are on going. Exit polls show a supermajority win for incumbent Prime Minister Shinzo Abe. Abe’s Liberal Democratic Party and coalition partner Komeito are set to win between 281 and 336 seats of the 465 total, boosting Abe's chances of becoming Japan's longest serving political leader. Investors see an Abe win as a downer for the JPY, it would mean a continuation of on going fiscal stimulus to lift the Japanese economy from deflation. USD/JPY closed the prior week on a high note reaching $113.49 at the end of trading on Friday. Investors are set to continue the bullish run on USD/JPY, if PM Shinzo Abe returns to power.

The US dollar ended the prior week on a positive note with the Senate's approval of 2018 budget, clearing a significant hurdle and moving the GOP closer to tax reform.  This together with a higher than forecasted existing home sales data released on Friday, retained investor's positive sentiment on the USD. Keen on investors mind is who takes the position of the next Fed Chair. News from the US says Jerome Powell, John Taylor and Janet Yellen are President Trump's top three nominees. The president will announce his choice on the 3rd of November 2017, the present Fed Chair's tenure will end February 2018. This week will see the release of advance q/q GDP, analyst forecast a q/q GDP of 1.8%.

Spain continues to battle the Catalonia region. Prime Minister Rajoy on Saturday noted that Spain will dismiss Catalan President Carles Puigdemont and his government and take control of the regional police force and public television and radio channels as part of a barrage of measures that could be ratified by the Senate within a week. The crisis seems of no effect on the Euro but heightened tensions could change investor's sentiment.

ECB's much anticipated October 26th meeting comes up this week. Plans on it bond-buying for 2018 will be laid out. Expectations are that the Central Bank will maintain the large size of its balance sheet through reinvestments of it maturing bond. The Euro had the bears in domination for most part of the prior week. The weekly chart shows the currency closed at 1.778 against the dollar. Flash PMI across the manufacturing and services sectors are expected the coming week.

The British pound continues its battle against Brexit. Though the pound closed higher against the dollar in Friday's trading, 'Brexit Deadlock' negotiations trailed it for most part of the prior week. PM Theresa May appearing before EU leaders on Friday made some headway with EU leaders assuring her of resuming trade talks as soon as they are clear on UK's fulfilment of its financial obligations to the EU. UK's Prelim q/q GDP is expected in the course of the new week as investors keep a close eye on how the British parliament handles its exit of the European Union.

The Canadian dollar took a beating on Friday on the back of soft CPI and retail sales numbers. The Bank of Canada which has hiked rates twice this year is expected to meet on the 25th of October. Investors anticipate no rate hike given soft economic data. Hence, the bullish run on USD/CAD is expected to continue in the new week.

The Australian dollar had a positive week with higher than expected employment data and positive economic data from China. The Aussie is however positioned to loose the most from a stronger dollar and a hawkish Fed. Higher US bond yields and a nod to Fed Chair Nominee John Taylor will knock off the AUD against the dollar. Australia's q/q CPI is expected in the course of the week.

The kiwi dollar suffered from a Labour party win in the course of the week. New Zealand First announcement of its coalition with Labour party ticked off investors and triggered a sell down on NZD. Investors are uncomfortable with the Labour party in power as it is opined to be inexperienced. The National party succeeded in returning the economy to a budget surplus and maintaining economic growth for 8 consecutive years. The Labour party will be introducing new immigration laws and making significant changes to the RBNZ. The sell down on the kiwi will most likely continue in the new week.