- The dollar traded mixed on Tuesday as risk-prone currencies consolidated gains. The S&P 500 was little changed, losing just 0.07 points to 1,093.01. The dollar index was also little changed, hovering around the 75- handle support. The yen rose modestly. Fitch warned that Japan's credit rating could be downgraded unless government borrowing would be kept in check. Sterling was pressured by Fitch's strong warning that the UK's credit rating is the most at risk among AAA rated countries. Sterling's downside was limited by strong UK retail sales and improving house prices. The Australian dollar traded near a recent high, supported by strong Australian business sentiment. The USD/CAD fell for a second day, testing the 1.05-area support.
- The EUR/USD consolidated yesterday's large gain. German and EMU business confidence unexpectedly fell, indicating a less robust economic recovery. Germany's inflation was flat, and together with the business confidence report, it is likely to encourage the European Central Bank to keep its monetary stance unchanged. The EUR/USD is in a strong uptrend that has been successfully tested several times. There is resistance in the 1.50 area. If this is broken, the EUR/USD will probably rise to the 1.54-area resistance. A failure to break the 1.50-area resistance will create a double top and a probable test of the long-term uptrend.
Financial and Economic News and Comments
US & Canada
- No major economic data today.
- Germany's consumer prices were up 0.1% m/m and unchanged y/y in October, final October CPI data from the Federal Statistical Office confirmed. The harmonized index of consumer prices (HICP) increased 0.1% m/m in October but declined 0.1% y/y; these were slightly revised downward.
- The ZEW eurozone economic expectations index declined to 51.8 in November from 56.9 in October, indicating eurozone investor confidence unexpectedly fell this month, according to data from the ZEW Centre for European Economic Research. The current economic situation index improved to -70.3 from -75.4. The ZEW German economic expectations index slipped to 51.1 in November from 56.0 in October, indicating Germany's investor confidence slightly declined this month but remained well above a historical average of 26.9. The current economic situation in Germany improved in November, with the current economic situation gauge increasing to -65.6 from -72.2.
- The UK's deficit on trade in goods and services widened to £3.5 billion in September from a revised £2.2 billion deficit in August (originally reported as a £2.3 billion deficit), while the deficit on trade in goods widened to £7.2 billion from a revised £6.1 billion August deficit (originally reported as a £6.2 billion deficit), the Office for National Statistics reported. Exports increased £0.7 billion and imports increased £1.9 billion. The deficit with EU countries widened to £3.4 billion in September from a £3.0 billion deficit in August, while the deficit with non-EU countries widened to £3.8 billion from a £3.1 billion August deficit.
- UK economic conditions continued to improve in September, according to a Conference Board report. The Conference Board UK leading economic index, a measure of future economic activity, was up 1.0% in September to 94.9, a sixth consecutive monthly gain, following increases of 0.9% in August and 0.5% in July. The coincident economic index, measuring current economic activity, rose 0.2% in September to 102.8, after remaining unchanged in August and rising 0.2% in July.
- UK retail sales rose for a second month in October, rising 3.8% y/y on a like-for-like basis, after a 2.8% y/y September increase, the British Retail Consortium reported. On a total basis, retail sales climbed 5.9% y/y in October after a 4.9% y/y advance the prior month. These are encouraging results - the best like-for-like and total October sales growth since 2002, the BRC said.
- UK house prices fell a less-than-expected 4.1% y/y nsa in September, improving from a 5.6% y/y decrease in August, according to data from the Department of Communities and Local Government. September house prices increased 1.2% m/m sa, a fourth consecutive month-on-month gain.
- The seasonally adjusted net balance of surveyors reporting increasing rather than decreasing UK house prices continued to rise in October to a reading of 34%, the highest net balance since December 2006, after a downwardly revised 20% in September, a monthly survey from the Royal Institution of Chartered Surveyors showed, suggesting the UK housing market is strengthening. London's net balance of surveyors reporting house price rises rather than declines jumped to 95%, the highest reading since December 1996.
- Japan's merchant confidence fell to a 5-month low in October, with the Japanese current conditions index unexpectedly falling to 40.9 from September's 43.1, according to the Cabinet Office's economy watchers survey. The future conditions index declined to 42.8 in October from 44.5 the prior month. The Cabinet Office downgraded its assessment of the index for the first time since December, asserting that the index showed weak trends have recently appeared despite signs the economy has stopped worsening.
- Japanese machine tool orders fell 42.6% y/y in October, easing the pace of decline from a 62.1% y/y drop in September, the Japan Machine Tool Builders' Association reported. Domestic orders decreased 55.8% y/y in October, while foreign orders declined 32.0% y/y.
- Japan's current-account surplus unexpectedly widened 0.2% y/y to ¥1.57 trillion ($17.5 billion) in September, according to figures released by the Ministry of Finance. Exports fell 32.1% y/y in September, easing the pace of decline from a 37.1% y/y slide in August. Imports fell 37.7% y/y, less than a 42.8% y/y August drop.
- The NAB Australian sentiment index increased to 16 in October from 14 in September, indicating Australia's business confidence climbed to near its highest level in almost six years, National Australia Bank Ltd. reported. The business conditions index jumped to 12 in October from 3 the prior month, indicating conditions on hiring, sales and profits reached their highest level since January 2008. All parts of the index improved significantly in October. Profits were up to 13 from 4, trading up to 15 from 8, and employment up to 7 from -1. Overall, the figures support the case for further interest rate increases by the Reserve Bank of Australia.
- China's house prices increased 3.9% y/y in October, the largest gain in 14 months, data from the Statistics Bureau showed, adding to concern that record lending may create asset bubbles in China. Investment in property development jumped 18.9% in the first 10 months of 2009 from a year earlier, after rising 17.7% for the nine months through September.
FX Strategy Update