Weekly Sentiment Paper

Distributed by: One Financial

For the Week of: 11/16 through 11/22

Written by: Andrei Wogen

Email: finance.wogen@gmail.com

Week in Review!

Australian Dollar!

New Zealand Dollar!

Japanese Yen!

China Renminbi; Onshore, Yuan!

Euro Area: Euro!

10

British Pound!

12

Canadian Dollar!

14

United States Dollar!

15

Week in Review
Euro Zone GDP comes in a bit higher than expected
German GDP comes in a bit higher than expected
France and Italy GDP come in pretty much as expected with Italy still in a recession
US Retail Sales data comes in higher than expected; the positive sentiment seen recently is
now beginning to be seen in actual data now it would seem
US UoM Sentiment numbers in higher than expected and previous
China Retail Sales and Industrial Production numbers both lower than expected and
previous showing a continued weakening of both the consumer and the manufacturing
sector in China
China new loans also lower than previous as the loan industry also slows down
BoE inflation report shows the Bank cutting its forecasts for inflation and growth; lower
energy and import/export prices and a weak Euro Zone were the main reasons for these
downgrades
China CPI continues its trend lower; still no sign of action though from the PBoC
UK employment data comes in mixed; unemployment rate stays steady against
expectations and the number of unemployed drops less than expected while wage
numbers show an improvement
Oil continues its move lower dropping below $74/barrel during the week

Australian Dollar
Overall Picture and Its Tone
Overall Australia is weak economically. The weak points continue to be weak mining
sector and the employment sector while the consumer also remains weak and feels weak as
both retail sales and consumer sentiment have been weak respectively. As for the business
sector, manufacturing and services sectors continue to weaken as does business sentiment.
Politically speaking, the country is doing well but recent budget problems have caused the

government to cut down on spending and adjust policy in order to keep debt from rising too
much. This action has also caused consumer sentiment to weaken. Another thing that has
caused some worry from the government is the strong housing market. Prices continue to rise
which is helping to support consumers some but has caused the government to voice their
disproval of these high prices worrying about a bubble forming. As for the central bank they
continue to remain neutral to slightly dovish while continuing to keep rates at historical levels.
They continue to say that rates are the right level to foster growth and investment. Overall then
the tone of Australia is neutral to slightly negative
. Overall Sentiment of the Australian Dollar

As for the overall sentiment towards the Australian Dollar, this is now fully
positive as it continues to move higher not only against the Yen but also against the
USD now.
Last Week in Review
Last week, things were quiet overall in terms of data from Australia. Home loans were
better than expected but still in negative territory, house prices slipped a bit while wage growth
data came in the same as previous. Business and Consumer confidence numbers came in overall
positive with Business Conditions number coming in far above the previous reading and
historical norms. However Confidence in businesses came in a little lower last week. As for the
consumer confidence number this lifted a little bit from the previous month but still is low
based on historical trends. The consumer is still feeling negative after the great fall it had after
the release of the most recent budget for Australia. This lower consumer confidence also points
to a holiday season that could be rather weak. The other event of interest last week was a speech
made by RBA Assistant Governor Kent who jawboned the currency lower as he talked about the
option for intervention continuing to be available. The move lower in the Aussie was interesting
to me as the market I thought had gotten used to the RBA being concerned with the high AUD
valuation since the RBAs meeting minutes and rate statements have hammered home that
point for quite a while now. The move lower in the AUD in light of what Kent said could have
been just because it is someone other than the RBA Governor, Stevens, jawboning the currency
and so this could mean that intervention could be getting closer. Overall conditions of Australia
and overall sentiment of the AUD now are moving apart as sentiment for the AUD improve.

The Week Ahead and Other Thoughts

This week is another slow week in terms of data. The RBAs meeting minutes from their
most recent meeting will be the key event for the week. In light of what we heard from RBA
Assistant Gov. Kent last week too we could get more jawboning than usual towards the AUD in
the minutes. Other data for the week will be New motor sales data on Sunday and then the
Westpac Leading Index and CB Leading Indicator numbers which, along with the RBA meeting
minutes, will all be released on Monday.

New Zealand Dollar

Overall Picture and Its Tone
New Zealand as a whole continues to do well though has weakened some over the past
few months, economically speaking. Lower commodity prices, lower house prices and lower
inflation have been the main weaknesses for the New Zealand economy. Other weaknesses have
been a deteriorating trade balance, along with falling exports, a fall in business and consumer
sentiment which has also translated into lower consumer spending via retail sales data.
However all is not bad in New Zealand and actually things are pretty good despite these
negatives. Though business sentiment is low, it is still high in historical terms which has been
seen in the manufacturing sector in particular which remains strong as well as the industrial
sector. As for trade, imports continue to rise while the labor market also remains strong with
falling unemployment and increased employment overall. However, as is the case around the
world overall, wages continue to remain weak. Looking to the housing market now, after rising
prices from the beginning of this year, they have fallen now from their highs after
implementation of policy to help cool the housing market went into effect several months back.
This, and now weaker building permits, continue to cause the housing market to weaken
overall though in some parts, construction remains active overall. As for the government, they
continue to remain strong as pro-growth policies and increased government spending continue
to help support the economy and with the recent elections keeping the incumbent prime
minister in power for another term, there will likely be little change. In regards to the central
bank, after having tightened policy by raising rates three times this year beginning in March,
the central bank is now on hold indefinitely after falling commodity prices and lower inflation
have caused the Bank to reassess their estimates of future inflation in the country. This is a
pretty big turnaround for them from just a few months ago when they were talking about
seeing a need to raise rates pretty consistently due to what they used to see as inflation
pressures building. However these pressures have since diminished or left altogether and so in
response the central bank is expected to be on hold until at least the middle of next year and
possibly longer if inflation doesnt start to pick up soon. They have also voiced their concerns
about the high valuation of the New Zealand Dollar relative to other currencies. This has caused
the RBNZ to intervene in recent months, in the currency market to bring down the value of the
Kiwi. This is an obvious statement by the Bank that they are not willing to let the currency stay
too strong and will do something to help bring it down and so in light of this there continues to
be speculation that they will continue to intervene in the markets going forward. Overall then,
the tone for New Zealand remains in neutral territory overall.

Overall Sentiment of
the New Zealand Dollar
The overall sentiment
for the New Zealand dollar is
now overall positive as it
continues to move higher
against the USD and JPY both
in particular.
Last Week in Review
The RBNZs Financial
Stability report last week
showed some more concerns within it in

NZD/USD Weekly -- reversal beginning?

terms of the strength of the NZ Dollar. This was also reiterated in a speech made by RBNZ Gov.
Wheeler later on. However Gov. Wheeler also said that the rate of the Kiwi could weaken some
on China slowdown or a higher US Dollar rate in light of rates being raised in the States. The
other thing of note in terms of the Report was that the RBNZ decided to keep in place loan
limits they have had for several months now that are meant to help cool the housing market,
which has been quite strong. Those loan limits too seem to be helping somewhat as construction
is cooling some and house prices are starting to weaken, though both by not very much. But
overall the key message was that the RBNZ still sees the NZ Dollar as being too high in value
relative to other currencies and so the likely-hood of more intervention coming form them is
pretty high in my opinion. Other data from the week was Fonterras Milk Payout forecasts
which actually rose some from previous forecasts. This is an encouraging sign, albeit a small
one because after the large drop in both dairy prices and payout estimates earlier this year, these
have quite a ways to go before they offer any real sort of optimism for the farmers involved as
well as the New Zealand economy as a whole. Other data was house price data which came in a
little lower than the previous reading. Consumer confidence numbers for November released
last week moved a little lower again this month but not as much as Octobers number. As for
the manufacturing sector, data released last week showed continued improvement in this sector
as the internals too showed more good signs. Employment, production and new orders
numbers were all higher than previous and high indeed compared to historical trends. Those
internals which moved lower from the previous month were finished stock and deliveries.
However these are still in expansion territory overall. As for the consumer, Electronic Card
Retail Sales came in better than previous with spending rising in all six retail industries of New
Zealand for the month of October. Overall then some good data out of New Zealand last week
especially in terms of the dairy industry (looking at the Fonterra payout numbers) and the
consumer which is looking to possibly be gaining some strength again. Overall, a divergence is

beginning between the NZD and New Zealands conditions overall though not so big a one as
fundamentals of New Zealand remain fairly good and the central bank is therefore only at a
neutral stance overall right now.

The Week Ahead and Other Thoughts

This week there are only two data sets to watch. On Sunday night (US EST time) Retail
Sales data will be released and if the Electronic retail sales last week were any indication, the
retail sales data this week could show some good data. The other data is visitor arrival numbers
for October. This data has been weak over the past few months and so it will be interesting, and
important for the New Zealand economy, if the number of visitor arrivals begins to increase
again. Other than that, moves in the Kiwi will likely be dictated by moves in other currencies,
particularly in the USD and JPY.

Japanese Yen
Overall Picture and Its Tone
Japan as a whole is very weak right now, politically, socially and economically. On the
economic side, businesses continue to be weak as manufacturing, services and industrial sectors
continue to be weak. On the consumer side, consumer sentiment and consumption both remain
weak as seen recently in household spending and retail sales data. As for trade, imports and
exports have been weak but now is improving some in recent months while the overall trade
balance remains in negative territory. Inflation also remains weak and continues to fall causing
deflation to persist. On the government side of things, debt remains high while recent tax hikes
meant to bring down the level of debt in the country have caused yet more weakness in the
economy. The government in general remains stuck in old ways and lacking reforms to help
revise the economy. As for the central bank they continue to remain very negative overall with
low interest rates and and a quantitative easing program that puts all others that have occurred
or are occurring to shame as its size is huge. A couple of weeks ago too, the central bank
surprised the markets by implementing and increasing their QE program. Finally, on the social
side of things, as the population continues to age the levels of debt continue to increase while
other social developments continue to cause weakness in the economy. Overall then the picture
of Japan is very negative right now.

Overall Sentiment of the Japanese Yen

The overall sentiment for the Japanese Yen is very negative right now as it

continues to move lower against

pretty much everything.
Last Week in Review
Last week, the big news from
Japan was not from the data but
from rumors and then
confirmations. First is the rumor
that continues to be that the
Japanese government will be
delaying the next round of tax hikes
for Japan. This would be a good thing if

Yen Futures Weekly -- continuing to fall

they do this but there is still some doubt

on whether this will happen. A final decision on it is expected now after this weeks preliminary
third quarter GDP numbers. If things are better than expected then a tax hike has a good chance
of happening while if the number shows yet more weakness in the Japanese economy overall
the tax hike will most likely be delayed. The other big rumor going around that is now pretty
much confirmed is that PM Abe will dissolve his parliament and have snap elections. This
election is set to take place on December 14th of this year; about halfway through Abes current
term as Prime Minister. He is trying to increase his support in the lower house but there is a
good risk, in my opinion anyway, that support for his opposition is great among the people of
Japan as the economy remains weak and so-called Abenomics are doing little if anything to
help with that. If Abe does lose support in Parliament, any hope that Abenomics had to help
grow the Japanese economy will likely be lost and will be instead replaced with new policy
measures (or at least a strong push for new policies) from his opposition. Also too, if support for
Abe wanes, this will likely put yet more pressure on the Yen but also the Nikkei possibly. Other
data last week showed a few good signs economic wise as industrial production numbers and
machine order numbers both came in higher than expected and previous. This is a good sign
overall as both these data sets and sectors of the economy have been moving weaker overall in
the past few months; especially ever since the tax hike. Capacity Utilization too came in better
than previous. However on the consumer side, consumer confidence came in lower than
previous as it continues to deteriorate. Other than that though the Yen continues to move lower
against pretty much everything. Then Yen and its fundamentals too continue to move inline
with each other quite well as both continue to be and move weaker.

The Week Ahead and Other Thoughts

This week, preliminary quarter three GDP numbers will be the key release. Expectations
are for a much better number than second quarters dismal reading. The risk though is that the
number is worse than expected and this could be a real possibility. This number is also
important too as already stated in terms of the tax hike decision. The other event of interest will

be the BoJ meeting. After last meetings big surprise, their meetings and speeches suddenly
have more interest and importance. There will likely be no action in terms of policy changes
however what is said in the policy statement could have some important analysis and views
from the BoJ. Other data for the week will be Trade Balance data, including export and import
data as well as Manufacturing index numbers both on Wednesday. Also too Wednesday will see
the BoJ release their economic survey which could also garner some interest especially, once
again, in light of their actions in the last meeting.

China Renminbi; Onshore, Yuan

Overall Picture and Tone
Overall China is weak right now economically and is changing politically and socially. As
for the economic picture, this has been weakening over the past few months. Inflation continues
to move lower which also includes food prices which continue to move lower. As for the
consumer, Consumer Confidence is improving some again after deteriorating over the past few
months while retail sales continue to move lower. As for the business side of things, the services
sector, manufacturing sector and industrial sector as well as business confidence all continue to
weaken overall. As for the employment picture this remains mixed to weak as labor costs
continue to weaken and the number of unemployed persons continues to move higher
highlighting the struggle of the Chinese economy to move from a strictly manufacturing based
economy to more of a services based country in terms of their main revenue and GDP growth
source. As for the housing market, prices continue to move lower as does loan growth putting
pressure on the consumer and the economy as a whole. With lower housing prices the demand
for existing and new housing is slowing and with the real estate market being such a big driver
of growth in China, this is putting a strain on its overall growth. On the government side of
things they continue to work on pushing through reforms to move the economy form a
centrally, government controlled economy, to a more market baed economy. During their recent
Fourth Plenum meeting they highlighted these reforms they are and want to implement
especially focusing on making the law system freer. As for the central bank, they continue to
implement reforms and easing measures to help revive the economy including reserve ratio for
certain banks and other reforms to help rural regions and the real estate market improve.
Interest rate liberalization is also one of the main things on the central banks agenda in terms of
reforms they want to implement. Overall then the tone of China is a more negative one right
now as reforms being implemented by the government and central bank continue to cause

weakness in the economy while overall global growth being weak is causing the manufacturing
industry to be weak right now.

Overall Sentiment of the Chinese Yuan (Onshore)

The overall sentiment for China is negative but as the Yuan is controlled by the
PBoC right now, the movements in their are not true in many ways. New loan growth
was also released last week and showed continued weakening in this part of the
economy as well as the data came in lower than expected and previous. This is not too
much of a surprise though as the overall economy continues to slow and the Chinese
central authorities continue to crackdown on the loan industry especially in the shadow
banking part of it. However, the Yuan has been strengthening versus the USD overall
lately however the past couple weeks it has weakened some against the USD but not by
much.
Last Week in Review
Last week, CPI numbers, Industrial production and retail sales numbers as well as Urban
investment numbers all came in lower than previous. CPI, for starters, continues to move lower
amidst lower food and energy prices in particular. However there is no indication that the PBoC
will be doing anything to help stem this fall in inflation including interest rate cuts. However
this has not stopped the market from speculating that such an action will come soon. As for
industrial production and retail sales numbers these show more weakness in the manufacturing
sector and in the consumer continues. Also urban investment numbers came in lower than
previous showing a continued slowdown in investment in China. The other data release of
importance from China last week was trade balance data which came in better than expected
overall but showed a drop in both exports and imports; yet more signs of a weakening
consumer and a weakening manufacturing sector though also, possibly, a weakening global
economy.
The Week Ahead and Other Thoughts:
This week foreign direct investment released on Sunday will be of interest and since the
urban investment numbers came in lower last week, we could see this number (Foreign
Investment) move lower as well. Also house price numbers for October are due on Monday and
we could see another bout of weakness in this number as house prices continue to move lower.

Euro Area: Euro

Overall Picture and Its Tone
The overall conditions of the Euro Zone are and continue to be very weak and negative.
Overall growth continues to move lower with some countries, including Germany, slipping into
negative growth in the most recent quarter. As for the business side of the economy, the services
and manufacturing and industries sectors all continue to move into weak territory while
business sentiment also continues to deteriorate. As for the consumer, consumption remains low
as seen in continued weakening retail sales data while sentiment also continues to move lower.
The labor market is also very weak with high unemployment, especially youth unemployment,
and wages continue to be low. Trade also remains weak with imports falling while exports are
actually remaining fairly supported. As far as the loan and money sector goes, loan growth
continues to be weak to both businesses and consumers. On the government side of things debt
levels remain very high and there is little ambition from some Euro Zone members to bring
those high debt levels down. In fact the recent budget presented by Italy to the European
Commission showed little in the way of actual reforms to bring down their debt level and was
accepted by the Commission showing once again, that these debt levels in the Euro Zone will
continue to rise until a day of reckoning comes and these countries have to default. Another
thing of continued concern continues to be the political divide between political members and
regions of the Euro Zone especially, now, in terms of how the ECB is allowed to deal with the
low growth and inflation. However disagreement and divide are also continuing to be present
in light of continued rising debt and lack of reforms from different countries, namely Italy and
France. As for the central bank, they continue to remain very dovish, recently implementing a
sort of QE program with the purchases of covered bonds and ABS assets in a bid to help revive
the Euro Zones struggling loan and banking industry in order to therefore revive economic
growth. They also have cut rates quite a good amount since about June of this year with one of
their rates now in negative territory. So overall the tone of the Euro Zone is negative.

Overall Sentiment of the Euro

The overall sentiment for the Euro currency is now looking a bit more positive as
it closes higher for the week against both the Yen and the US Dollar.

Last Week in Review

Based on last weeks
preliminary GDP numbers from
several of the Euro Zone
countries and the Euro Zone as a
whole, there seems to be possibly
some life in the economy there.
Italy, France, Germany, Greece
and the Euro Zone as a whole all
came in as expected or in some
cases, better than expected.
However dont get too excited.

EUR/USD Weekly -- reversal beginning?

Italy is still in recession and though

German data showed them missing slipping into recession this quarter, growth is still weak
overall there. However, German growth in particular, was boosted mainly by private
consumption while foreign trade also helped to boost the overall reading. So maybe some bright
spots are starting to surface. Other data for the week was final inflation data from the Euro
Zone, Spain, Italy and France and Germany. All of them came in pretty much inline with
expectations though in comparison to previous estimates, inflation overall continues to fall and
be weak across the Euro Zone though there were some bright spots as Portugals CPI . Other
data for the week was kinda sparse actually going into Friday of last week. Sentix Investor
sentiment was a bit better than expected though still far in negative territory. Other than that
though, there was little for data. Overall though no matter the fact that GDP came in pretty
much as expected and inflation seems to be bottoming some, the picture in the Euro Zone still
looks very bleak. Expectations too continue to rise that the ECB will implement QE and this was
seen again this week via a Reuters poll that was released. However the real question is when
they will do this. We have though been also getting some indications that members of the ECB
are willing to go ahead withe QE as we heard from ECB member Noyer in particular who said
that he gives the thumbs up to QE. There also continues to be indications that the ECB will
not be cutting rates anymore. Another thing of note last week were concerns going around in
European markets in relation to the big banks in the Euro Zone and the stress tests that just
occurred there. On the surface, the stress tests looked good overall but as investors and analysts
continue to dig through the details, the story isnt so great. There are now concerns that the
quality of assets in some of the bigger banks in the Euro Zone are not so good and could pose
problems later on down the road. There are also concerns that the stress tests were therefore, not
stressful enough. All of this points to a possible renewed worry about the banking sector in the
Euro Zone which, as we saw last time these worries came to light, affected literally every
market around the world for awhile. So this is something to definitely keep an eye on. As for the

tone of the currency and Euro Zone these are now beginning to diverge as the Euro is looking
stronger while the overall conditions of the Euro Zone continue to be very weak which is being
reflected by a continued dovish ECB. There is therefore, in my opinion, a pretty good amount of
risk that the Euro will move higher for a bit now as it retraces some after its continued
downtrend which has lasted since about June of this year.

The Week Ahead and Other Thoughts

For this week monthly services and manufacturing data from the Euro Zone will be
released along with a couple of speeches by Draghi during the week. As for the services and
manufacturing data, these releases will come from France, Germany and the Euro Zone while
Industrial Orders and Sales data from Italy will also be released, all on Thursday. In my opinion,
there is a good risk for some upside numbers after the past several months of declines in these
data sets. Other data will be German and Euro Zone economic sentiment numbers released on
Tuesday. Here too I see some upside risk after the continued drop in these numbers over the
past few months. As for Draghis speeches, the first one on Monday, will be the most important
as he will be testifying before the Committee on Economic and Monetary Affairs in Brussels.
This means that there could be mention of policy, both current and what could come. His
second speaking engagement for the week will be on Friday where he will be speaking on
Reshaping Europe at the European Banking Congress. There could also be mention of ECB
policy here too, both current and the future. However there will likely not be too much change
in his current rhetoric in either of these speeches.

British Pound
Overall Picture and Its Tone
The overall economic picture is one of strong growth while some weakness has been seen
recently in some sectors. The recent weakness has been seen in particular in the manufacturing
and services industries with the latter being of some concern as the UKs economy is so
dependent on this sector for its growth. Other weakness has been seen in the countrys exports,
though not too surprising there as the Pound continues to be strong overall. Imports also have
fallen some over the last few months. As for the consumer, consumption has moved lower as
seen in recent weakening in Retail Sales data while sentiment numbers have begun to weaken.
This weakness in consumer sentiment has stemmed in part from a weakening housing market
as house prices fall as well as construction activity. As far as inflation goes, this also continues to
move lower as the UK follows the rest of the world (or a large part of it) into a world-wide

deflationary trend, in some respects. This low inflation and weaker growth has also kept the
BoE at bay in terms of them raising rates. They continue to be neutral on that fact and the
market is currently expecting them to keep rates on hold and not raise them until the middle
part of next year at the very least. Another concern of the BoE, which has kept them from
raising rates at this point is the low wage growth. However the labor market as a whole
continues to improve as the number of newly employed continues to rise and the number of
unemployed continues to fall. Overall then the tone of the United Kingdom is neutral to slightly
positive.

Overall Sentiment of Pound Sterling

Overall the sentiment is neutral to negative as it continues to move lower versus the USD
and more positive versus the Yen as it moves higher.

Last Week in Review

Last week employment data was mixed while the BoE was dovish. First the employment
data: the number of unemployed persons in the UK (shown through the Claimant Count
number) fell less than expected for October and the unemployment rate pushed higher.
However a bright note in the employment data came in the form of higher than expected and
previous wage growth readings. Wage growth, both including and excluding bonuses rose for
the month of September higher than previous and expected. However the main reason for the
move down in the Pound last week was the BoE inflation report hearings. In it, the Bank cut its
forecasts for both GDP and CPI for this year and into twenty-sixteen (2016). The concerns with
inflation are low energy prices and low wages along with lower import prices and weak
demand while there were also concerns about the weak growth in the Euro Zone putting
pressure on the UK. However the Bank continues to see good growth overall and still sees
prospects for rate hikes to occur. However the market focused on the negatives more and
rightly so as rate hikes seem to be further out than they were not too long ago. So overall the
Pound weakened last week especially against the US Dollar as prospects for rate hikes were
pushed further back yet again. The Pound and the tone of the UK continue to be mixed between
each other as GBP/USD continues to move lower, inline with the overall tone of the UK, while
the GBP/JPY continues to move higher, against the overall tone of the UK.

The Week Ahead and Other Thoughts

This week is another busy week in terms of events and data releases. First up, on Tuesday,
inflation data for October will be released. However with recent lower energy prices, CPI more
than likely fell for October. Also PPI data will be released on Tuesday. Then, the following day,
Bank of England meeting minutes from their most recent meeting will be released. In my
opinion there is a good risk for more dovishness to come from the BoE in light of weakening
United Kingdom and Euro Zone fundamentals. Then to close out the week, Retail sales data
will be released on Thursday which will give us some indication of how the consumer has fared
during the month of October even as the manufacturing, services and industrial sectors

continue to weaken while consumer sentiment has fallen. Another minor data release for the
week will be Right-move House price data on Sunday.

Canadian Dollar
Overall Picture and Its Tone
The Canadian economy continues to be mixed overall. The positive side of things is that
inflation continues to be relatively stable and high, though this has likely changed now with oil
moving so low. Overall growth too continues to be supported. As for the consumer this is where
some of the weakness lies as spending remains subdued as seen via retail sales data. As for the
business side of things, this remains supported overall. Oil production also continues to
increase but with prices as low as they are, they are not helping the economy any right now. As
for the housing sector, this remains strong with high prices and good building activity both
being supported by low interest rates. As for trade, exports have started to increase some
recently especially as the US continues to bounce back. As for the labor market, this seems to be
improving as new jobs continue to increase in number and the unemployment rate continues to
move higher while wages remain weak, as seems to be norm right now. As for the central bank
they remain neutral to dovish in their tone towards the Canadian economy though they are
starting to sound a bit more optimistic now as the US economy, which Canada is very
dependent on, continues to improve. However, they continue to see recent inflation levels as
being just temporary and still continue to expect weaker growth for a while going forward.
Overall then the tone of Canada as a whole is neutral in relation to the monetary policy in
particular.

Overall Sentiment of the Canadian Dollar

Overall the sentiment for the CAD is more neutral/positive as it continues to move
higher versus the Yen but now also the US Dollar.

Last Week in Review

Last week data was sparse from Canada, as usual. Housing starts fell below expectations
and previous reading and new House price data was mixed. As for housing starts data, multiunits were the weak spot for October while single-family housing rose some but is still a small
portion of the overall real estate market. Also 6 of 10 provinces weakened in October. We also
heard form a couple of BoC members who were overall mixed to dovish in their tone towards
the Canadian economy. Also manufacturing sales climbed higher for the month of September.

The tone of the Loonie and the Canadian economy are now starting to diverge further as the
sentiment of the currency continues to improve.
The Week Ahead and Other Thoughts
Inflation data released on Friday will be the key release for the week. With oil prices so
low though in particular, I am not expecting great things from this release. This, and likely
continued falling oil prices will likely push the CAD lower except versus the Yen, which
continues to be very weak..

United States Dollar

Overall Picture and Its Tone
The overall picture of the US one of positive growth overall, a central bank that is (very
slowly) turning more hawkish while the government has been pushed to one side in many
respects as it continues to wrangle with its differences and division. As for the economy: it
continues to improve overall though there has been some weakness seen recently, particularly
in the manufacturing sector due to the increasing value of the US Dollar. However this sector, as
well as the industrial and services sectors continue to grow. Business sentiment also remains
strong. The employment sector continues to be good overall with rising employment and falling
unemployment. However problems remain as long term unemployed people continue to
struggle to find jobs and the skills gap continues to widen as fewer and fewer have the skills
necessary to do high tech jobs that are so vital to a nations growth. As for the consumer, they
also remain pretty good though weak wage growth continues to be a problem and consumption
is down some now looking at retail sales data. Sentiment though for the consumer remains
strong overall. Trade continues to do well with both exports and imports strong though the
deficit in the US continues to deepen. As for inflation, this continues to stay steady, but steadily
below the Feds target. As for housing, after a good start this year this sector has weakened
some in the past few months as rate hike expectations continue to be in focus for this industry.
As for rates, and the Fed, in light of the overall US economic picture they have begun to turn
more hawkish in their tone and in their policy recently exiting their QE program completely in a
bid to begin to slowly tighten policy. The tone from the Fed is also changing, though also
changing as they are sounding more optimistic on the economy and jobs and so on but are still
concerned about low inflation. Looking to the government, this part of the US continues to be in

a wrangle with itself failing to pass any meaningful laws or policy changes to help the economy
grow. Recent mid-term elections have given some people some hope as the Republicans now
control both the House and Senate though with a stubborn President at the helm of things, little
will likely change until after presidential elections in two years. However we will have to see.
Maybe Congress will be able to pull a rabbit out of its hat after all. Overall though the tone of
the US economy is neutral to positive overall due to a more optimistic Federal Reserve.

Overall Sentiment of the US Dollar

Overall the sentiment for the USD continues to be positive overall but now is weakening
some against several of its counterparts after being so strong for so long.

Last Week in Review

Last week in the US was pretty slow as well in terms of data. The key release for the
week, which didnt come till Friday, was Retail Sales data which showed a better than expected
reading. This goes inline with continued improving consumer sentiment which as also released
last week via the prelim UoM sentiment reading. So with both sentiment and consumer
consumption moving higher now, this is a good sign for the US economy overall. However with
the winter months around the corner, and with winter appearing to be beginning early across a
good amount of the country already, both these things (consumption and sentiment) could very
likely move lower in the next few months. Other data for the week was weekly jobless claims
which rose a bit for this week. Other data showed export and import prices falling again for this
month which does put some possible downward pressure on inflation data coming up. Besides
that we did hear form a couple of Fed members, Dudley and Rosengren with both sounding a
bit dovish in their tone towards rate hikes. Also in the news regarding the Fed was news that
Fed member Fisher will retire officially on March 19th of next year. His retirement though, along
with the planned retirement of Plosser next year, will see two of the biggest hawks leave the
Fed. This could very likely cause a change in tone in terms of possible coming rate hikes. Other
than that though, one of the big stories in the markets right now continues to be the continued
rise in the USD which could also give the Fed a pause in terms of when they raise rates. The
tone of the US Dollar and the US are now beginning to diverge some, except in the USD/JPY
currency pair which continues to move inline with the overall conditions of the US.

The Week Ahead and Other Thoughts

For this week, CPI data and FOMC meeting minutes from their most recent meeting were
the two key releases for the week. As for CPI, with lower energy costs and, as we saw last week,
lower export and import prices both will likely put a drag on the inflation reading. Expectations
too are showing a dip from last month including an expectation of a negative reading for the
month-over-month inflation data. This continued move lower in CPI, if it continues, will keep
the Fed at bay in terms of rate hikes and we could therefore see the US Dollar retrace some. The
other key event for the week will be the FOMC meeting minutes. The meeting minutes for the
most recent meeting showed more optimism than was expected in regards to the economy

while this was offset by concerns about inflation. So what the Banks assessment is of the US
economy will be key to watch though there will likely be little change form last time if not a yet
better assessment. The key things to watch therefore are their assessment on inflation and the
US Dollar as well as global growth. Inflation remains low and with the continued rise of the US
Dollar, both could cause some concern from the Fed members. As for global growth this got no
mention in the rate statement and so it will be interesting to see whether it got any attention in
the meeting itself. And of course any mention of rates and when they could rise will be key.
Besides that, data to keep an eye on will be Building Permits and Housing starts data on
Wednesday which will show how well the housing market is doing in the US. And then on
Tuesday we will get more housing data with the release of the NAHB Housing Market index
and then on Thursday will be Existing home sales, Manufacturing PMI, Philly Fed
Manufacturing and Initial jobless claims numbers will all be released. On Monday too will be
Capacity Utilization and Industrial production data being released. Overall though, the US
Dollar continues to rise especially against the Yen and until data begins to weaken, there will
likely be no reason for the trend to reverse or pullback very much at this point. However, as I
stated, the risk for a pullback in the US economy and subsequently the US Dollar I think is
pretty good especially as winter seems to have gotten a sooner start than some wanted,
including (especially) myself.