v US durable goods jump by 3.8%, supported by strong demand for aircrafts;
v House Republicans agree to a one year extension on the payroll tax break;
v Japan downgrades its economic growth forecasts for FY'11 and FY'12 as a strong currency and the Eurozone debt crisis take their toll.
The USD is locked into its recent ranges as market participants get a head start on the holiday weekend. Despite yesterday's disappointing reading of Q3 GDP, data this morning suggests that a double-dip recession is far from a foregone conclusion. Durable goods orders jumped to 3.8%, far better than the 2.2% expected, and up from last month's revised flat reading. However, with the volatile transportation segment stripped out, the measure gained by a more modest 0.3% after last month's gain of 1.5%. Personal income and personal spending failed to meet expectations, both gaining by only 0.1%. On Capitol Hill, Republican Speaker of the House Boehner buckled under mounting pressure to extend the payroll tax break for two more months. The measure will now be sent on to President Obama for his signature, but the uncertainty still looms with another political showdown now set for February.
The EUR remains within its recent ranges of a percent to either side of 1.30 as debt concerns are countered by signs of resilient global economic growth. The ECB's emerging dovish bias is becoming increasingly apparent with Bank member Bini Smaghi telling reporters this morning that the Bank should pursue quantitative easing in a deflationary scenario. After this week's unprecedented three-year lending operation got off to a strong start with higher than expected demand, signs of increased liquidity and further monetary policy easing will make it difficult for the common currency to post any sustainable gains in the short term. Moreover, sovereign funding concerns are yet again rearing their head with Italian bond yields swiftly approaching 7%, an unsustainably high level with Italy set to sell a minimum of 440B EUR worth of debt in 2012.
The GBP pared early gains after a British home loans report failed to meet expectations. The number of loans approved for house purchases fell to 34,738 versus last month's 35,196 and the expected 35,400. Nevertheless, sterling is just 0.3% from its strongest level against the EUR since last January as the ongoing debt crisis in mainland Europe has prompted investors to seek alternatives to Eurozone assets.
The JPY is flat this morning, remaining above the 78 handle as the encouraging durable goods report out of the US saps demand for the safe-haven yen. However, its relatively strong levels remain a cause for concern with a government report released this morning projecting 2.2% GDP growth in the fiscal year starting next April. They also expect the economy to shrink by 0.1% in FY'11 ending next March. These figures compare to earlier estimates of 0.5% and 2.8% growth in FY'11 and FY'12 respectively.
The Commodity Currencies are slightly stronger this morning with stocks and commodities both in the black encouraging the few remaining investors to seek higher yields before the long weekend. Oil pushed higher to $99.65/bbl, gold was flat at $1610/oz and copper gained to $346/lb. The CAD is headed for a strong close below the 1.02 level on the higher price of oil, Canada's main export, and on the encouraging reports out of the US, Canada's main trading partner. Canadian GDP registered slightly worse than expected at 0% on a monthly basis, and stayed flat at 2.7% on an annualized basis. The NZD is slightly lower this morning after a series of minor earthquakes hit the largest city on New Zealand's south island, Christchurch. While no major injuries or damage have been reported, the tremors were enough to clear out shopping malls during the busy holiday shopping season as memories of the recent, much stronger earthquakes remain fresh. The MXN is headed for a weekly gain, coming in as the second-best Latin American performer after the strong durable goods report out of the US, the destination for 80% of Mexican exports, paints a positive outlook for Mexican trade in the coming months.
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This market summary is prepared by Union Bank's Global FX Department for the general information of its customers. It is based on the most accurate information currently available, but should not be considered investment advice or a guarantee of future exchange rates or trends.