• The dollar fell as risk appetite and stocks rose after Abu Dhabi bailed out Dubai. The greenback consolidated its last-week gains on stronger-than-expected US labor conditions. Improving economic figures have increased speculation of an earlier-than-expected withdrawal of monetary stimulus. The Federal Reserve is unlikely to announce any major policy changes at its Wednesday meeting. However, our latest strong readings of the US economy and employment situation are raising the probability of an earlier-than-expected Fed tightening and this should support the dollar in the coming weeks. The S&P 500 rose 7.70 to 1,114.11. The yen advanced as Japan's large corporate sentiment improved modestly. Sterling rose despite lower UK house prices in December. The Australian and Canadian dollars were supported by improving risk sentiment.
  • The EUR/USD rose on today's better risk sentiment, but concerns about Greece and other weaker members' financial positions continued. European Central Bank council member Erkki Liikanen said investors have understood that withdrawing emergency measures next year doesn't mean the ECB will immediately tighten monetary policy. The EMU yield advantage has narrowed recently, increasing speculation that the Fed may even withdraw stimulus before the ECB. The EUR/USD is short-term oversold, but its long-term outlook is bearish. There are resistance in the 1.47-1.48 area and support in the 1.45-1.44.


Financial and Economic News and Comments

US & Canada

  • There are no signs of a double-dip or W recession in the US. The Globicus/qEcon Research overall leading index continues to rise, suggesting the US economic recovery has progressed for strong growth in Q4 2009 and that the expansion will last at least into Q3 2010. The overall leading economic index' growth rate increased to 10.7 in October from 10.6 in September. Both the short and long leading indexes' growth rates were strongly positive. The short leading index reached an all-time-high 11.7 in November while the long leading index eased slightly to 10.3 in October from its highest level since 1982 the prior month. The coincident index continues to improve; its growth rate increased to -4.7 in October from -5.1 in September. US GDP grew at a 2.8% annualized rate in Q3 2009, the first expansion in more than a year, and will possibly expand at a 4-5% range in Q4.


  • The Globicus/qEcon Research leading index of employment (LIE) shows a rapidly improving US labor market. Since bottoming in February 2009 at -11.0, the LIE's growth rate had improved substantially. The index advanced to 7.8 in November from 5.8 in October, pointing to positive private-sector job growth in December. The index also indicates the employment situation is likely to recover faster than the consensus forecast. The Federal Reserve will not tighten its monetary policy until the employment situation improves. However, improving labor market conditions, as indicated by our LIE, may induce the Fed to raise interest rates before a market-expected Q3 2010 tightening. The latest data from the Labor Department showed private nonfarm payrolls fell 18K in November after falling 157K in October. The unemployment rate declined to 10.0% from October's 26-year-high 10.2%.


  • Canada's capacity utilization rate declined marginally to 67.5% in Q3 2009, a tenth consecutive quarterly slide and the lowest since records began in 1987, from an upwardly revised 67.7% in Q2, Statistics Canada reported.


  • Eurozone industrial production fell as forecast 0.6% m/m in October, the first fall in six months, after a downwardly revised 0.2% m/m increase in September, according to IP data from Eurostat. October IP fell 11.1% y/y, following September's revised 12.8% y/y drop.


  • Eurozone employment fell 0.5% q/q in Q3 2009 after falling at the same rate in Q2, according to a separate report from Eurostat. Q3 employment decreased 2.1% y/y, following Q2's 1.8% y/y decline.
  • UK house prices fell for a second month in December, falling 2.2% m/m to £221,463 ($361,131), after a 1.6% m/m decline in November, Rightmove Plc reported. House prices grew 1.7% y/y, following November's 1.6% y/y increase. London house prices declined 1.2% m/m to £398,426 in December, but climbed 1.7% y/y. Rightmove forecast a 2010 asking price standstill, saying that the factors leveraging asking prices upwards pre-election will be countered by negative price forces post-election, the net effect being national average asking prices standing still during 2010.
  • Switzerland's producer and import prices were unchanged m/m in November after a 0.4% m/m decline in October, the Swiss Federal Statistical Office said. Producer and import prices fell 3.3% y/y, following October's 4.7% y/y decrease.


  • Business sentiment among large manufacturing and service companies in Japan improved for a third straight quarter but remained strongly negative in Q4 2009, according to the Bank of Japan's December Tankan survey. The large manufacturers index advanced to -24 in Q4 from -33 in Q3, while the large manufacturers outlook improved to -18 from -21. The non-manufacturing index increased to -22 in Q4 from -24 in Q3, while the non-manufacturing outlook declined to -19 from -17. The Tankan all industries capex index, measuring capital expenditures by all Japanese industries except the financial industry, showed large manufacturers and non-manufacturers plan to cut business investment by 13.8% this fiscal year, more than the 10.8% planned three months ago.


  • Japan's industrial production increased 0.5% m/m in October, an eighth consecutive month-on-month gain and the slowest pace in eight months, final October IP data from the Ministry of Economy, Trade and Industry showed, following a 2.1% m/m advance in September. October IP fell 15.1% y/y, following an 18.4% y/y September drop. Capacity utilization increased 0.2% m/m in October after rising 1.6% m/m in September.

FX Strategy Update

Primary TrendPositiveNegativePositiveNegativeNegativePositiveNeutral
Secondary TrendNeutralNegativeNeutralNeutralNeutralNeutralNeutral
Start Position1.4628N/A1.64401.0340N/A0.6601N/A