USD Stronger As Risk Aversion Returns

EUR weaker on officials' comments; larger loss for private Greek debt holders near certainty. Market turns to Empire state manufacturing, capacity utilization, industrial production and Canadian international securities transactions and quarterly business survey.

The weekend G20 meeting did not bring anything earth shattering. The only signs of progress were calls that the EU should act decisively within eight days to resolve its debt crisis and that G20 will assure that adequately capitalized banks have access to funding.

Optimism that started after last Friday's solid retail sales continued throughout the Asian session on comments that a comprehensive and decisive solution for European debt crisis will be prepared before the EU summit on 10/23. However, risk aversion has increased in early London session as German finance minister Schaeuble suggested that "EU summit will not present a final solution".

Positive sentiment that we have seen over the past two weeks could falter in the days ahead as German Finance minister Schaeuble also for the first time admitted that private holders of Greek bonds are likely to receive a larger haircut than 21% agreed three months ago. Even chancellor Merkel has begun to publically acknowledge the possibility of a bigger loss. While these comments are hardly surprising, the fact that senior officials started to openly discuss these issues could put a break on the current risk rally.

The New York session starts at 8:30 am ET with October Empire State manufacturing index that is expected to slow its rate of decline and print -3.9 from previous -8.8. Considering solid NFP, ISM manufacturing and last Friday's robust retail sales, the print could surprise to the upside.

At 9:15 am ET September Capacity utilization and Industrial production are due. The capacity utilization is seen slightly higher at 77.5% from 77.4% and industrial production is anticipated unchanged from August at 0.2%.

News from Canada include August International Securities Transactions due at 8:30 am that are seen lower at CAD 10 bln from CAD 11.8 bln and BOC Business Outlook quarterly survey due at 10:30 am.

Patrik Urban