Retail Sales Upbeat, Italy Upticks, BOJ Up Next

The euro briefly fell below 1.35 in US trading but rebounded on speculation Monti will form a government in Italy. USD and JPY were the top performers while NZD and EUR lagged. The Bank of Japan ends its two-day meeting in the upcoming session.

Monti will meet with the Italian President tomorrow to presient his technocrat-driven government. The news helped to offset a weak Spanish auction, a rise in Italian 10-year yields back over 7% and blowouts in periphery spreads.

Stocks and forex decoupled as the modest risk appetite shown in the 0.5% rise in the S&P 500 was not registered in FX where EUR and GBP fell nearly a cent.

The divergence was partly driven by a 0.5% rise in US October retail sales; beating the +0.3% consensus. Ex-autos sales increased 0.6% versus the +0.2% expected. Last months 1.1% was driven by a boom in auto sales but this figure suggests spending increases may be more sustainable sales ex-autos and gas rose 0.7%. The caveat is that disposable income has declined for the past three months.

The ability of the USD to outperform on positive US data should not be overlooked as a potential trade for the next several months.

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Asia-Pacific Preview

The BOJ renders a rate decision at 0330 GMT but first, Australia releases its Q3 wage price index at 0030 GMT. The consensus estimate is for a 0.9% q/q rise. The BOJ will not waver from 0.1% rates and is unlikely to increase bond buying or roll out any new programs. Shirakawa will hold a news conference around 0630.