FOREX TRADING

• USD: Higher, stocks extend losses after report of a surge in jobless claims and a dip in LEI
• JPY: Higher, tracking risk sentiment, Q1 GDP outpaces the US and EU, deflationary pressures continue
• EUR: Lower, EU nations divided over how to combat the debt crisis, Juncker sees no immediate intervention
• GBP: Lower, retail sales rise for third month in a row, pressured by risk aversion /global risk fears
• CAD and AUD: AUD & CAD lower, deleveraging of stocks and commodities, RBA/BOC rate hike doubts

Overview

USD and JPY surged in Thursday’s trade supported by a spike in risk aversion as equity markets tumble in reaction to speculation that the EU lacks a unified response to the sovereign debt crisis and central banks refrained from coordinated intervention to support the EUR. There are reports that the German ban on naked short selling caught some of the EU members by surprise. This surprise sparked speculation that the EU lacks unity to try and combat the sovereign debt crisis and to restore confidence in the EUR. EU’s Juncker sees no immediate currency intervention to support the EUR. Equity markets and the EUR were also pressured by widening of EU credit spreads and more strikes in Greece protesting Greek austerity plans. GBP traded lower despite report of improving UK retail sales pressured by spillover from the EUR. Commodity currencies traded sharply lower in reaction to a spike in risk aversion and weaker equity markets. Asian equity markets traded at an eight-month low. JPY surged supported by safe haven demand and gains in cross trade versus Europe and commodity currencies. Investors continue to deleverage from higher risk assets seeking safety in the USD, JPY and CHF. Today’s US economic data was disappointing with jobless claims posting a surprise rise, leading indicators posting an unexpected dip and the Philly Fed rose by slightly less than expected. Stocks tumbled after today’s US economic reports and USD and JPY extended early gains. (more…)

March nonfarm payrolls rose by 162k

US April nonfarm payrolls and unemployment rate will be released on Friday May 7th. March nonfarm payrolls rose by 162k and the unemployment rate held steady at 9.7%. March nonfarm payrolls employment increased by the most in three years. The March employment report suggests that businesses and employers are gaining confidence in the US economic recovery and are starting to hire. Excluding census hires the March nonfarm payrolls rose by 124k. The March unemployment report suggests that the outlook for US labor market has improved. According to the Bureau of Labor Statistics (BLS) temporary workers and health services continued to add jobs along with employment in the federal government. Employment declined in financial activities and information.

Temporary hiring and long term unemployment up

On the positive side, the March unemployment report showed an increase of 40k temporary workers. Temporary hiring is normally considered an indicator of future job growth. So far temporary hiring hasn’t translated into many full time jobs. In addition, the average workweek increased and improving weather contributed to an increase in construction jobs. Construction jobs rose by 15k last month which was the biggest monthly increase since March 2007. On the negative side, long-term unemployment continues to rise and a third of the rise in the nonfarm payrolls reflects temporary or government workers. According to the BLS the long-term unemployed (those jobless for 27 weeks or more) increased by 414k to 6.5mln. 44.1% of unemployed persons were jobless for 27 weeks or more. In past recessions the level of long-term unemployed never reached 24%. The underemployment rate which includes part-time workers who prefer full-time positions and people who stopped looking for work increased to 16.9% from 16.8%. Government payrolls increased by 39k in March. Although more part-time workers were hired in March and the hours worked were up, wages slipped a bit. (more…)

Asia Pacific markets were sharply down with the Nikkei 225 and the Hang Seng index falling 1.55% and 1.3% respectively. Although US equity markets seemingly shrugged off the disappointing jobless claims report yesterday, global markets retreated as risk-aversion drove investors into lower-yielding, safe haven assets. Concerns regarding sovereign debt in the eurozone continue to weigh heavily on the euro which fell to 1.3515 early in London trading. Spreads between German and Greek bonds continued to widen today as Greece struggles to finance its debt. With the cost of debt rising, the focus now turns to the IMF backed EU rescue package as investors question the overall viability of the plan. Also weighing on market sentiment are fears of possible tightening in China and Japan, as the yen continues to climb. Commodities relinquished yesterday’s gains as the dollar continued to advance. Crude oil fell below the $85 handle with gold creeping back below $1154

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• USD: Lower, jobless claims post unexpected rise, continuing claims fall to lowest level since January 2009
• JPY: Higher, supported by a rising risk aversion and Yuan revaluation speculation
• EUR: Higher, cost of financing Greek debt rises, Trichet says Greek aid plan is workable
• GBP: Higher, election polls point to a hung parliament, manufacturing output and house prices rise
• CAD and AUD: AUD & CAD higher, Australian employment growth as expected, tracking equities

Overview

USD and JPY traded higher Thursday supported by a spike in risk aversion as equity markets decline. The decline in equity markets is attributed to ongoing worries about sovereign debt risk in Europe and concern that the global recovery may slow in the second half of the year. JPY was also supported by Yuan revaluation speculation. A PBOC official has called for a managed float for the Yuan and the New York Times reports that China is close shift in its currency policy. The BOE and ECB left monetary policy unchanged as expected. EUR traded lower pressured by ongoing concern about Greek debt troubles as the Greek/German 10 year bond spread widens to record level. EUR downside was limited by statement from ECB President Trichet said that the Greek aid plan is workable and that Greek debt default is not an issue. EUR traded higher into the European close. GBP outperformed supported by report of better than expected UK industrial production manufacturing output and rising UK house prices. GBP gains were limited by the latest UK election polls which show the Conservative party’s lead has narrowed increasing the risk of a hung parliament. Commodity currencies traded lower pressured by weaker commodity prices and declining equity markets with AUD downside limited by report of improving Australian employment growth. US jobless claims unexpectedly rose last week. Worries over Greece and the surprise rise in US jobless claims dampen risk appetite. USD pared overseas gains after the release of the jobless claims report. The Fed says that monetary policy decisions will be data driven and the employment outlook will be key to any change in policy. The jobless claims report suggests that the US labor market remains weak and that the Fed will continue to keep interest rates low for an extended period. Recent USD gains have partly reflected a spike in bond yields. Bond yields dipped after the release of today’s jobless claims rise.

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USD Higher, Jobless Claims Fall, Pending Home Sales Tank

• USD: Higher, jobless claims fall, productivity revised higher, pending home sales tank, stocks erase gains
• JPY: Lower, BOJ’s Noda rejects government pressure to buy JGB bonds and expand QE
• EUR: Lower, Greek budget euphoria fades, ECB holds rates policy study, exit plan continues, weak Q4 GDP
• GBP: Mixed, BOE holds interest rates and asset purchases unchanged, house prices decline
• CAD and AUD: AUD & CAD lower, Australian trade deficit widens, Canadian building permits fall

Overview

The USD traded higher Thursday supported by ongoing concern about the Greek fiscal outlook and in reaction to mixed US economic data. USD extended its early rally after the release of an unexpected decline in pending home sales. Equity markets gave back all the morning’s early gains after the release of the pending home sales data. The pending home sales report appeared to inject more risk aversion into the trade. The ECB elected to hold rate policy unchanged as expected. In the press conference following the ECB policy decision ECB President Trichet said that the recovery is on track and will remain uneven, current ECB rates are appropriate, and inflation expectations remain anchored. Trichet went on to say that adverse weather could impact first quarter growth. The ECB expects EU 2010 GDP growth of 0.4% to 1.2%. The ECB expects EU 2010 CPI at 0.8% to 1.6%. Trichet said that the ECB welcomes Greece’s fiscal plan and signaled that the ECB would continue with the current gradual pace of withdrawal of liquidity. Trichet also said that it is not appropriate for the IMF to aid Greece. This comment sparked selling of the EUR and generates concern that Greece could be left out in the cold if the EU fails to agree to aid for Greece. EU officials will discuss the need for Greek aid Friday. GBP traded mixed initially supported by the BOE’s decision to hold interest rates and asset purchases unchanged. GBP turned lower in reaction report of a decline in UK house prices. Commodity currencies were mixed with a CAD continuing to outperform. AUD traded lower pressured by concern about the global growth outlook and in reaction to report that the Australian trade deficit widened in January. JPY traded a three month high versus the USD supported by a decline in risk appetite as Asian equity markets decline. JPY was also supported by comments from the BOJ Noda rejecting Japanese government calls for the BOJ who purchase more JGB’s. JPY turned lower after the release of better than expected US jobless claims and productivity data. Jobless claims posted a larger than expected decline, productivity rose more than expected and unit labor costs declined by more than expected. USD edged higher after the release of these reports. Pending home sales posted a sharp decline and factory orders rose more than expected. USD traded to the highs for the day after the report of the pending home sales drop and erasing of early US equity market gains.

Focus turns to Friday’s release of US February unemployment and nonfarm payrolls. The trade expects a modest uptick in the US unemployment rate and a fairly sharp drop and nonfarm payrolls partly because of bad weather and snow storms that blanketed much of the US during February. (more…)

USD Mixed, Hoenig Says Zero Rates Not Sustainable

• USD: Lower, risk appetite improves as stocks rally, hope for Greek aid
• JPY: Higher, unemployment unexpectedly declines, government call for the BOJ to target inflation/buy JGB’s
• EUR: Lower, supported by short covering ahead of Wednesday’s Greek budget announcement
• GBP: Lower, construction PMI falls, election polls point to a hung parliament
• CAD and AUD: AUD & CAD higher, RBA rate hike, strong retail sales, BOC refers to higher CPI

Overview

The EUR and GBP made new lows for the year in overseas trade pressured by concern about sovereign debt risk in peripheral European nations and UK debt. Despite ongoing uncertainty about the Greek fiscal outlook there was limited follow through selling of the EUR and the USD traded lower in the US session. Greece is expected to outline its budget plans Wednesday. Anticipation that Greece will announce significant austerity measures sparked a short covering rally in the EUR. If Greece takes credible action to reduce its deficit it will increase the likelihood of EU aid for Greece. GBP continued to underperform. The latest UK election polls point to a hung parliament which generates concern that the UK government may not have the political backing to cut the UK deficit. The AUD traded higher supported by the RBA’s 25bps rate hike. CAD continues to rally in reaction to yesterday’s release of stronger than expected Canadian Q4 GDP and a slightly less dovish bias from the BOC. The BOC elected to hold rate policy unchanged as expected but dropped language in its policy statement that inflation risk is “tilted to the downside.” JPY edged higher supported by better than expected January unemployment and report that Japan’s finance minister calls on the BOJ to consider targeting inflation. USD experienced light short covering ahead of tomorrow’s Greek budget plan announcement. USD downside was limited by hawkish comments from the Feds Hoenig. Hoenig said that zero rates are not sustainable and the Fed must be prepared to hike rates while unemployment rate is still high. Hoenig is seen as a minority voice on the FOMC but his comments helped to limit today’s USD selloff.

Focus turns Thursday’s ECB and BOE policy meetings and Fridays release of US unemployment. The ECB is expected to remain on hold and there is uncertainty about whether the BOE will maintain its current level of asset purchases. US February unemployment is expected to post a modest rise with nonfarm payrolls unchanged from last month. (more…)

U.S. Review

What if Sustainable is also Insufficient?

• Although the recovery continues to take shape and the pace of growth this year appears to be on trend, there is a growing realization that such growth is insufficient to significantly lower unemployment or generate enough public sector revenues to meet campaign promises.
• Moreover, there are also growing concerns that the applied stimulus to the economy today to reinvigorate growth may lead to lurching the economy in the direction of higher inflation and unsustainable deficits in the near future–from the frying pan into the fire?

When Good is Not Good Enough

Chairman Bernanke’s testimony this week stated the increasingly obvious reality of this recovery “Notwithstanding these positive signs, the job market remains quite weak, with the unemployment rate near 10 percent and job openings scarce.” Meanwhile, the Obama administration projected 9.8 percent unemployment at the end of this year. On the budget front the outlook for local, state and federal budgets is for significant deficits that will force local and state spending cuts while raising concerns about the long-run position of the federal debt. Therefore, in a year where economic growth is expected to come in at trend, the inability of the economy to deliver lower unemployment and more balanced public finances is worrisome. By the way this is also an election year. (more…)

USD Higher, Jobless Claims Post a Sharp Drop

• USD: Higher, jobless claims post an unexpected sharp decline, few details on Greek bailout
• JPY: Higher, Japanese markets closed for holiday
• EUR: Lower, pressured by lack of details of EU Greek support plan
• GBP: Higher, supported by gains in cross trade to the EUR
• CAD and AUD: AUD & CAD higher, stronger Australian employment growth, Chinese inflation slows

Overview

USD traded mixed Thursday with the EUR pressured by report of a vague promise from the EU to help Greece and the AUD surging in reaction to report of much stronger than expected Australian employment data. According to EU officials the EU is working on a plan to help Greece avoid debt default but the details of the plan have not been released. Australia’s unemployment rate declined and jobs growth was three times stronger than expected in January. The combination of the Greek support plan and the Australian employment report contributed to improving risk appetite along with a report that China’s January consumer prices rose at a slower than expected pace. China’s January CPI rose by 1.5% the trade had expected a 2% rise. Slower inflation growth in China reduces fear of the need for aggressive tightening from China. China’s central bank signaled that it plans to maintain accommodative monetary policy. The improvement in risk sentiment was somewhat dampened by the fact that China also reported that lending was the third highest on record in January and the US Congressional oversight panel warned that 3k US banks may have to curtail retail lending because of exposure to commercial real estate loan risk. Growing risk of commercial real estate loan default may be the next looming crisis for the financial markets. US economic data was positive with jobless claims posting a sharp drop. A Bloomberg survey of economists finds that the majority of economists surveyed believe that US employment rate has peaked at 10.1% will fall to 9.5% per year end. The White House forecasts that nonfarm payrolls growth will be 95k a month in 2010 with unemployment averaging 10%. The White House expects payroll growth to accelerate by 190k per month in 2011, 251k in 2012 and 274k in 2013 with unemployment falling back to 5.5% by 2016. The USD continued to gain versus the EUR after the release of the US jobless claims report and in reaction to the statement that the German Free Democratic Party has yet to consent to the Greek bailout. EUR traded to the day’s lows in reaction to a statement from an EU official that they will deal with Greece in March. (more…)

USD Higher, Trade Deficit and Bernanke Pressure Stocks

• USD: Higher, risk aversion re-emerges, uncertainty about EU Greek bailout plans, trade deficit widens
• JPY: Mixed, machinery orders and corporate good prices turn higher, CAPEX spending improves
• EUR: Lower, concern Greek rescue plans may slow the EU recovery
• GBP: Lower, BOE cuts UK inflation and growth forecast, King says the bank may consider expanding QE
• CAD and AUD: AUD & CAD lower, China’s trade surplus narrows, risk aversion re-emerges

Overview

USD traded firmer Wednesday supported by uncertainty about a potential Greek rescue plan, weaker than expected trade data from China and Bernanke’s testimony on withdrawing liquidity. The EU is expected to release the details of a plan to support Greece but there is concern that whatever plans emerge that EU sovereign debt risk and the need for austerity measures present a threat to the EU and the global recovery. According to a Bloomberg survey, optimism about the USD is at a 15 month high with the USD supported by concern that sovereign debt risk in Europe will hurt the EU and global recovery. China’s trade balance for January unexpectedly narrowed to 14.2bln, a reading 19.5bln was expected. Narrowing of China’s trade surplus generates concern about the strength of the global recovery. Bernanke laid out the Feds plans for withdrawing liquidity as the economy recovers in testimony before Congress today. He said that the timing of exit will be data dependent and the Fed may soon consider raising the discount rate. He went on to say the Fed can use the interest-rate paid on reserves, selling of Fed security holdings, reverse repos or offering of term deposits to depository institutions as ways to guide monetary policy. Bernanke said the Fed will eventually have to raise rates. The US trade balance widened by a much more than expected 10%. Widening of the trade balance was due to a 4.8% increase and imports in the impact of recent USD strength. The widening of the trade deficit and Bernanke’s rate hike talk pressured US equities and supported the USD. The trade awaits the outcome of Thursday’s EU summit for details of what the EU plans for Greece. According to a German official Greek aid is not on Thursday’s agenda. FX price movement has been volatile with risk appetite supported by optimism about Greek rescue plan and risk aversion re-emerging on uncertainty about the implications of the rescue plan for the EU recovery. Some analysts warn of a moral hazard if EU bails Greece out, but the EU may have little choice. (more…)

USD Higher, ADP Job Cuts Smaller than Expected

• USD: Higher, ADP employment beats expectations fueling recovery hope, non-manufacturing ISM rises
• JPY: Lower, pressured by improving risk sentiment and selling in cross trade
• EUR: Lower, EU commission endorses Greek debt proposals, services PMI revised higher, retail sales flat
• GBP: Lower, UK consumer confidence improves, services PMI posts an unexpected decline
• CAD and AUD: AUD & CAD lower, Australia trade deficit improves, China’s mortgage rates rise

Overview

USD traded mixed to firm Wednesday supported by report of above expectation January ADP employment report. EUR initially traded higher supported by report that the EU has endorsed the Greek proposal to reduce its deficit. EUR was also supported by report of stronger than expected EU January services PMI. GBP traded mixed with early support from report of a jump in UK consumer confidence. GBP gains were limited by report of an unexpected decline in UK services PMI. Commodity currencies were mixed with AUD posting a modest improvement in overseas as Australia reports improvement in its trade balance. CAD drifted lower despite report that economists have upgraded Canada’s 2010 GDP forecast with selling attributed to a modest setback in crude and the price of gold. A report that some Chinese banks have hiked mortgage rates dampens demand for commodities. JPY weakened in reaction to improving risk sentiment and selling in cross trade. US economic data was mixed. The challenger job survey said job cuts increased for the first time since July with January layoffs 59% higher than December of 2009. The surge in layoffs is due to downsizing in retail and telecommunications. The ADP employment report for January shows that employment dropped slightly less than expected and the decline in December was also revised lower. The ADP report suggests that US January nonfarm payrolls will turn positive. The USD edged higher after the release of the ADP report. Non-manufacturing ISM for January came in higher but slightly below market expectation. The non-manufacturing ISM index came in above 50 which suggests the service sector of the US economy is entering an expansion phase. USD consolidated its ADP gains after the non-manufacturing ISM release. FX markets remain range bound.

Focus turns to central bank policy meetings in Europe Thursday and Friday’s US January unemployment report. The ECB is expected to remain on hold and continue to outline exit strategies and the BOE is expected to remain on hold as well with the possibility of announcing a pause in its asset purchase program. USD headline unemployment is expected to post a 0.1% rise to 10.1% and nonfarm may turn slightly positive. (more…)

USD Higher, Jobs and Durable Goods Data Disappoints

• USD: Higher, jobless claims declined less than expected, durable goods rise less than expected
• JPY: Mixed, pressured by improving risk appetite, retail sales declined more than expected
• EUR: Lower, Greek fiscal concern, rumors of Greek bailout denied, business confidence at a 10 month high
• GBP: Mixed, Chancellor Darling says UK plans to halve its deficit over the next four years
• CAD and AUD: AUD & CAD higher, Australia may speed up spending cuts, hawkish RBNZ

Overview

USD, JPY and EUR traded lower with GBP and commodity currencies trading higher Thursday. The decline in USD and JPY is attributed to improving risk sentiment sparked by President Obama’s proposal in the State of the Union address to reduce taxes on businesses to boost growth and in reaction to the FOMC January statement which says the US economy is in recovery. The FOMC also indicated that it plans to begin withdrawal of extraordinary stimulus measures. EUR was pressured by concern about sovereign debt risk in Greece as the Greek EU ten year bond spread is at its widest level since Greece adopted the EUR in 2001 and China’s central bank says the nation should not buy Greece’s debt. GBP continued to outperform and rallied to a five month high versus the EUR supported by comments from UK Chancellor Darling that the UK has the most aggressive deficit reduction plan amongst the industrialized nations. Commodity currencies traded higher tracking improving risk appetite, firmer equity market trade and in reaction to hawkish comments from the RBNZ. RBNZ governor says that the central bank will begin to withdraw stimulus mid-year. US economic data was mixed. Jobless claims declined by less than expected and durable goods posted a smaller than expected rise. These reports may generate concern about the strength of the US recovery and raise questions about the FOMC’s optimism about the US economic recovery. USD edged higher after the release of these reports as equity markets traded lower. The trade awaits news on Fed Chairman Bernanke’s nomination and focus turns to Friday’s release of US advanced Q4 GDP. (more…)

USD Pares Gains as Consumer Confidence Rises

• USD: Higher, spike in risk aversion as China’s tightens monetary policy, consumer confidence rises
• JPY: Higher, China to hike reserve ratios on two major banks, BOJ policy unchanged, cuts deflation forecast
• EUR: Lower, above forecast German IFO fails to boost demand
• GBP: Lower, UK GDP disappoints, UK crawls out of recession, Pimco’s Gross says avoid UK debt
• CAD and AUD: AUD & CAD lower, China’s reserve ratio hike discourages demand for high yield currencies

Overview

USD traded higher Tuesday supported by a spike in risk aversion as equity markets decline in reaction to report that China hiked reserve ratios on some of its banks. Tightening of monetary policy in China generates concern about the global recovery. GBP was pressured by a report of weaker than expected UK Q4 GDP.EUR traded lower despite report that German IFO came in above forecast. GBP and EUR were pressured by selling in cross trade to the JPY with JPY supported by safe haven flows as equity markets decline. JPY traded higher despite S&P lowering of Japans bond outlook to negative from stable. S&P placed Japan on negative watch due to concern about Japan’s rising debt load and lack of flexibility to deal with reducing the debt. Commodity currencies traded lower tracking the spike in risk aversion and weaker commodities with crude oil prices falling below $74 a barrel. There was limited reaction to report that Fed officials are considering adopting a new benchmark interest rate to replace the one used for the last two decades (Fed funds). According to a Bloomberg report Fed officials are considering interest on reserves as the new benchmark rate. Today’s US economic data was mixed with case Shiller home price index down and consumer confidence rising. USD came off its high after the consumer confidence report. Focus turns to Wednesday’s FOMC meeting and President Obama’s State of the Union address. (more…)

U.S. Review

The Fourth Quarter Ended on a Weak Note

• We raised our estimate of fourth quarter real GDP growth to a 5.6 percent pace based on recent data on business inventories and international trade.
• December economic data continue to come in below expectations. Retail sales declined 0.2 percent and sales excluding motor vehicles fell 0.3 percent.
• The Fed’s Beige Book and the National Federation of Independent Business survey showed conditions continuing to deteriorate across much of the country.
• Consumer prices rose 0.1 percent in December.

Caution Remains the Buzz Word

Businesses and consumers remain exceptionally cautious and will not likely be phased by a blowout real GDP number for the fourth quarter. We have recently raised our estimate for fourth quarter real GDP growth to a 5.6 percent annual rate. A substantial slowdown in the rate of inventory liquidations will account for the overwhelming majority of that gain. Final demand remains exceptionally weak and, while the worst of the layoffs appear to have passed, there is little sign hiring is set to pick up. Three major reports, the National Federation of Independent Businesses (NFIB) Small Business Optimism Index, the BLS Job Openings and Labor Turnover (JOLTS) report, and the Fed’s Beige Book reiterated this point this past week.

The NFIB Small Business Optimism Index fell 0.3 points to 88.0 in December. Plans to hire increased modestly but remain in negative territory, rising to -2 percent from -3 percent. In addition, fewer businesses said they were able to raise prices and fewer planned to boost inventories. The one positive aspect of the report is the number of firms stating they planned to boost capital spending rose slightly, climbing 2 points to 18 percent.

The lack of any clear sign that hiring is picking up is particularly discouraging following last Friday’s weak employment report. Job openings in the November JOLTS report fell back to their series low of 1.8 percent. The number of hires and number of total separations both increased in November but total separations still outnumber hires, indicating employment declined on a net basis. There has been a slight improvement in hiring over the past five months. The number of people hired each month peaked in July 2006 and fell by 1.7 million by June of 2009. Hiring has since increased by 257,000 per month.

Total separations, which include quits, layoffs and retirements, rose in November but have generally been trending lower. The combination of fewer hires and fewer separations means that businesses are reducing their workforces more through quits and retirements today than by layoffs. The data also provided the missing link as to why the drop in weekly first-time unemployment claims has not translated into a net increase in nonfarm payrolls.
The Fed’s Beige Book also noted weaker economic conditions and relatively few districts had anything positive to say about the employment outlook. Most districts said layoffs continued but most also noted there has been some reduction in the number and size of cutbacks and that more firms are opting for hiring freezes or reducing hours instead of making large-scale cuts.

The other major disappointment this week was November’s retail sales report, which showed a 0.3 percent drop for December. Earlier reports had indicated that chain store sales were up for the month, so expectations for the Commerce Department’s retail sales figures were high. The Commerce Department sales figures are adjusted for both seasonal and holiday day changes and this year’s earlier Thanksgiving means that more holiday shopping took place in November and sales were thus pulled forward. On a net basis, holiday sales still show modest gains from last year.

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U.S. Dollar Trading (USD) weak Retail Sales left the dollar offered against most of the majors especially as the stock market shrugged off the data and continued to track higher. December Retail Sales were at -0.3% vs. 0.5% previously. Weekly Jobless Claims were at 444k vs. 437k forecast. DJIA +29 points closing at 10710, S&P +2 points closing at 1148 and NASDAQ +8 points closing at 2316. Looking ahead, December Core CPI is forecast at 0.1% vs. 0.0% previously. Also released, December Industrial Output forecast at 0.6% vs. 0.8% previously.

The Euro (EUR) remained inside the defined weekly trading range as the ECB held rates at 1.0% and President Trichet was quite Dovish in his outlook for the Eurozone. This countered the weak USD and the pair ended at the key 1.4500 level. Overall the EUR/USD traded with a low of 1.4445 and a high of 1.4558 before closing at 1.4500. Looking ahead, December EU inflation is forecast at 0.3% vs. 0.1% m/m.

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USD Gains Versus EUR, JPY Rallies on Weak US Retail Sales

• USD: Mixed, jobless claims up, retail sales down, business inventories rise
• JPY: Higher, tracking risk sentiment, machinery orders fall sharply
• EUR: Lower, Trichet calls for strong USD, EU Greek bond spreads continue to widen
• GBP: Higher, Moody’s expressed confidence UK will tackle its deficit, BOE may pause its bond buy program
• CAD and AUD: AUD & CAD higher, Australia’s employment report beats expectations

Overview

USD traded mixed Thursday with the main focus on report of improving Australian employment growth and Fed policy outlook. AUD traded higher supported by report of better than expected Australian employment growth. Australia’s employment report helped to boost demand for Asian equities and risk appetite. Growth led currencies continue to outperform. The Fed’s Dudley said that short-term interest rates in the US may rise in six months or may not rise for as long as two more years depending on the strength of the recovery and employment outlook. The ECB left rate policy unchanged as expected and the EUR traded lower pressured by ongoing concern about sovereign debt risk in Greece. In the press conference following ECB policy meeting ECB President Trichet said current rates are appropriate, price developments are expected to be subdued, data suggest improvement in economic activity, EU economy to grow at a moderate pace in 2010, unemployment expected to rise somewhat further, risk to inflation outlook broadly balanced and the ECB will keep phasing out unneeded policy measures. (more…)