FOREX TRADING

USD Lower as Stocks Rise, Risk is Back On

• USD: Lower, pressured by improving risk sentiment as Abu Dhabi comes to the rescue of Dubai debt
• JPY: Higher, manufacturing sentiment improves, CAPEX spending falls at a record pace
• EUR: Higher, Q3 employment and industrial production decline
• CHF: Higher, producer/import prices improved to flat in November
• GBP: Lower, Rightmove house prices post an unexpected drop
• CAD and AUD: AUD higher & CAD lower, commodity prices mixed, Canada’s capacity use dips

Overview

USD traded mixed to lower Monday pressured by improving risk sentiment as equity markets rally in reaction to news that Abu Dhabi has pledged 10bln rescue plan for Dubai debt. JPY outperformed despite report that the improvement in the pace of manufacturing sentiment slowed and CAPEX spending declined at a record pace. JPY was supported by report that the Japanese coalition government agreed to keep bond issuance low ¥44trln. The agreement to keep Japan’s bond issuance below this level will reduce the risk of a downgrade of Japan’s debt rating. European currencies were mixed with GBP pressured by report of an unexpected decline in UK house prices and EUR gains limited by report of a drop in industrial production and continuing uncertainty about the outlook for Greece’s sovereign debt. Commodity currencies were mixed despite the improvement in risk sentiment as crude prices trade lower. USD ended last week trading at one month high supported by improvement in US economic data including better than expected US employment and stronger than expected retail sales. Today’s FX trade seems to be re-linking price direction to risk sentiment with the USD trading higher before the Abu Dhabi news then turning lower in reaction to the Abu Dhabi rescue plan. There was no major US economic data released in today’s trade. Focus turns to Wednesday’s conclusion of a two day FOMC meeting.

Continuing USD gains will hinge on whether the Fed announces details of its exit strategy and drops language in its policy statement pledging to maintain low yields for extended period.

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