Overview     
US October unemployment came in worse than expected with headline unemployment rising above 10% and the nonfarm payrolls reported below 200k. The nfp decline was less than 219k last month but higher than most economists had expected. The BLS also revised down September job losses from 263k to 219k and August job losses from 201k to 154k. The USD and JPY traded higher after the release of today's US employment data as equity markets weakened. The report raises concerns about the current improvement in risk sentiment. USD reversed early gains as equities turn positive. The downward trend in nfp in the September and August revisions are the main bright spots in today's report. However, most of the improvement reflects an increase in government workers. The private sector continues to loose jobs The October employment report will reduce the likelihood of an early Fed rate hike. The FOMC indicated at this week's meeting that the Fed is unlikely to consider a hike until the US starts to produce jobs. The unemployment report may deflate optimism about the US recovery but the likelihood of the Fed maintaining low yields for an extended period should keep the USD well offered on rallies. The price of gold rallied to a new record high today which may increase concern about that central bank liquidity is creating a bubble in a number of asset markets including gold.

The USD traded mixed ahead of the release of US October unemployment with the AUD supported by the release of the RBA policy statement and the CAD pressured by report of an unexpected loss of jobs in October. The RBA policy statement said that said that interest rates will need to gradually rise. The RBA also raised its growth and inflation forecasts. Canada posted an unexpected loss of jobs in October and the unemployment rate rose to 8.6%. European currencies were mixed with GBP supported by report of rising output prices and the CHF supported by report of unchanged unemployment in Switzerland. JPY traded higher supported by report a rise in leading indicators.

Today's US data:
October unemployment rose to 10.2% and nonfarm payrolls declined by 190K. The unemployment rate was expected to rise to 9.9% and nonfarm expected to fall by 175k. September wholesale inventories declined by 0.9%, a 1% decline was expected.

Upcoming US data:
Next week's US economic calendar includes the November 12th release of initial jobless claims for the week ending 11/07 expected at 510k compared to 512k last week. October Treasury budget will also be released on November 12th expected at -180bln compared to -155.53bln last month. On November 13th October import prices will be released along with September international trade and November University of Michigan consumer sentiment. Import prices are expected to rise 0.5% compared to 0.1% last month. The trade balance is expected to improve -30.71bln compared to -31.50bln last month. Michigan consumer sentiment is expected at 73 compared to 73.7 last month.

JPY
JPY traded sharply higher supported by a spike in risk aversion as equities markets decline in reaction to a report of worse than expected US October unemployment. The US unemployment data generates concern about the outlook for US recovery and may reduce demand for high risk assets. JPY was also supported by report that Japans September leading indicators rose 3.2 points and the coincident indicator rose 1.3 points. The rise in Japans leading indicators is another sign that Japan's economy is recovering. A record rise in the price of gold also contributed to dollar selling pressure. The rising price of gold may partly reflect the outlook for continuing stimulus from the Fed and concern about risks that Fed policy of maintaining low yields for an extended period presents to the USD as the global economy emerges from recession. The BOJ announced the start of its exit strategy from its corporate bond purchase last Friday.