The euro weakened against the U.S. dollar for the third-day and slipped to a fresh weekly low of 1.4926 during the overnight session, and the single-currency looks as though it may have reached a top in November as the recent rally stalls ahead of the yearly high at 1.5064. Talking Points • Japanese Yen: Remains Range-Bound Against Greenback • Pound: Three-Day Decline Stalls Ahead of 20-Day SMA • Euro: ECB Monthly Survey Shows 1.0% Expansion in 2010 • US Dollar: Monthly Budget Statement on Tap Euro Forms Top Following Three-Day Decline, British Pound Finds Support Ahead of 20-Day SMA The euro weakened against the U.S. dollar for the third-day and slipped to a fresh weekly low of 1.4926 during the overnight session, and the single-currency looks as though it may have reached a top in November as the recent rally stalls ahead of the yearly high at 1.5064. As a result, we may see the EUR/USD continue to retrace the advance from the end of October, and a break back below the 20-Day SMA (1.4891) could lead the pair to test the 50-Day at 1.4754 for near-term support. Meanwhile, the European Central Bank monthly survey showed participants held an improved outlook for the region and forecasts economic activity to expand at an annual rate of 1.0% in 2010 from an initial projection for a 0.3% rise in GDP. At the same time, the report showed the growth rate is anticipated to contract 3.9% this year amid earlier calls for a 4.5% drop in the growth rate, while inflation is expected to average 0.3% this year and 1.2% in 2010. As a result, the central bank reiterated that “not all our liquidity measures will be need to the same extend” and stated that the emergency programs will be “phased out in a timely and gradual fashion,” but held a dovish outlook for inflation as policy makers expects price pressures to remain “subdued” going into the following year. Nevertheless, the economic docket showed industrial outputs in the Euro-Zone increased 0.3% in September versus forecasts for a 0.5% rise, while the annual rate of production slipped 12.9% from the previous year after tumbling 15.1% in the previous month. The British pound weakened for the third day, but bounced back from the intraday day low (1.6515) during the European trade and remains little changed from the previous day after finding intraday support ahead of the 20-Day SMA at 1.6500. As a result, the GBP/USD is likely to hold steady going into the North American session, and the pair may continue to retrace the sell-off from August as the short-term rally remains well-supported by the rising trend in the 20-Day moving average. However, the lack of event risk will leave the currency in the hands of trader sentiment as risk trends continue to drive price action in the foreign exchange market, and the GBP/USD may hold a broad range throughout the remainder of the week as investors weigh the outlook for future policy in the U.K. U.S. dollar price action was mixed overnight, with USD/JPY continuing to hold the narrow range from earlier this week, and the reserve currency could face increased volatility going into the North American trade as investors weigh the prospects for a sustainable recovery in the world’s largest economy. The monthly budget statement scheduled for 19:00 GMT is expect to show a short-fall of $162.5B in October from $155.5B in the previous month, and the rise in the public deficit could drag on the exchange rate as investors weigh the prospects for long-term stability in the U.S. Nevertheless, initial jobless claims are expected to fall to 510K in the week ending November 7 from 512K in the previous week, while continuing claims are projected to weaken to 5700K from 5749K for the week ending October 24, and the data could encourage an improved outlook for the labor market as the economy emerges from the worst recession since the Great Depression.

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