The general market expectation was -2.4% and this equates to a +1% MoM which is a good sign for the Japanese economy. JPY crosses still unchanged as market digests news.

The big manufacturing index was -33 which was exactly on forecasts.

The Tankan report is due out shortly and it is expected to show a further improvement in business sentiment in line with the global economy. The Tankan is the only piece of Japanese economic data which often elicits an immediate response from the FX market.

USD/JPY is in a consolidation phase after its break below 91.00, with profit-taking buyers towards 89.00 and longer-term sellers now close to the breakdown level. With pairs like the AUD/USD starting to make new highs, this is starting to have a short-term effect on the JPY crosses as they also consolidate/retrace some of their losses from the last 10 days.

Wu Jinglian is a prominent Chinese economist and here is an essay of his on the last 60 years of Chinese economic development and also what the future may hold.

A lot has happened in the last 18 months and it is interesting now to look back at markets and see how they are relatively situated. If the GFC is totally behind us, then perhaps some currencies have a bit of catch up to play.

When the AUD/USD broke above .88 in mid-2007 in the midst of the global economic boom, the majors were at the following levels; EUR/USD 1.38, USD/JPY 120 and cable 2.04.

When the AUD/USD broke back below .88 in August 2008 as the credit crisis was emerging, the levels were; EUR 1.48, JPY 109 and cable 1.86.

Quite obviously the big mover has been GBP/JPY, falling from 245 two years ago to 145 today. We now get to decide whether the move to 245 was way overdone in the first place, whether the fall to 145 has been similarly overdone, and where the truth lies.

Another new daily high for the AUD/USD overnight, this time it stopped at .8847, but the dips are negligible really and the AUD looks like it’s going to continue to grind its way higher. The commodity market is still the main source of AUD buying and I suspect that there will now be a raft of options towards .9000 which is certain to attract the market.

Not much in the way of economic releases during Asian time.

Good luck today.

• ADP employment report -254,000; weaker than expected
• Q2 US GDP revised higher to -0.7% versus -1.0% expected
• Chicago PMI drops to 46.1 in September versus expected 52.0
• US mortgage delinquencies rise to 8.5% of mortgages outstanding from 7.7% in Q1
• Fed’s Lockhart, Kohn remain in “lower for longer” camp
• USD share of global reserves falls to 62.8% in Q2 from 65.0% in Q1: IMF
• ECB’s: Liikenan and Orphanides –prepare, but don’t implement exit strategies yet
• S&P 500 ends 0.3% lower at 1057, up 2.6% for the month
• Gold rises $15 to 1006; oil spikes $3.64 to $70.35

Loads of rumors today, the most prevalent of which was that there was an order to sell EUR 3.5 bln for an intergovernmental payment from the EU to the UK (the opposite of the typical monthly flow). EUR/GBP fell sharply in London but the market either sold far more than EUR 3.5 bln or the order was smaller than rumored because the EUR/GBP cross ended up bouncing to fresh session highs late in London trade, reaching 0.9160 from 0.9080 lows.

EUR/USD was quite choppy, dropping to 1.4580 during the US morning before rebound close to overnight highs at 1.4675 before stalling. We recovered from the lows ahead of the month end fixing and extended gains in early afternoon as share prices recovered and commodities rallied.

USD/CHF and EUR/CHF saw several rounds of intervention from the SNB today. They were quite “loud” in the execution of the orders, clearly trying to get the message to the market that a weaker franc is still desired. They bought USD/CHF at 1.3040 during the New York afternoon, a surprise to the market. Traders note that the SNB has intervened each time the ECB has conducted a 1-year refi tender to absorb EUR/CHF sales linked as lenders to Eastern Europe borrow from the ECB and buy CHF to fund loans made during the credit bubble.

USD/JPY traded very quietly between 89.40 and 89.80 with some half-year end sales seen weighing on USD/JPY for Japanese repatriation though there was talk of solid USD/JPY buying mixed in at the fixing.

AUD USD sold off briefly after stocks dumped in the wake of weak Chicago PMI data. Stops were triggered below 0.8780 but prices soon recovered as the buy-the-dips mentality remains very strong. Solid sell orders between 0.8830 and 40 were absorbed before a test of an 0.8850 barrier stalled the rally. We end at 0.8830.

It should be an interesting end of the week with loads of data to keep markets hoping. I wish I could be here but I’m off for a few days. Safe trading, and see you Tuesday.

Gary Stern is stepping down as the President of the Minneapolis Fed.

He is being replaced by Narayana Kocherlakota.

Let’s hope he never makes any news…I couldn’t type that if my life depended on it…

Big one 24 hours ago in Samoa, another big one in Indonesia this morning, now one in Peru.

Reminds me of Shark Attack Summer in 2001…

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