• The dollar rose against most major currencies on Tuesday. The highest US existing home sales since early 2007 supported the dollar and stock prices despite a downward revision in Q3 2009 US GDP. The S&P 500 gained 3.97 to 1,118.02 as the Santa Clause rally continued. The S&P 500 is now just 10-15 points below very important resistance; if this resistance is broken, the stock market will rally. US bond yields rose and the yield spread between the 2-year and 10-year notes widened to a record for a second straight session. The yen fell for a sixth straight day as the Japanese yield and growth differentials deteriorated. The euro declined for a sixth consecutive day. Greece's sovereign debt rating was lower to A2 by Moody's, less than expected, but Moody kept its negative outlook for Greece. The Australian dollar fell below our stop at 0.8770. We entered this trade in early-February 2009 at 0.6601 so it has been very profitable. The Canadian dollar rose for a third day, supported by rising Canadian yields and economic recovery optimism.
  • The GBP/USD fell for a fourth day as Q3 2009 UK GDP was revised higher by a smaller-than-expected 0.1% to a 0.2% q/q decline. The pair is trading below the 1.60 handle, trying to find support at the 200-day moving average. There is support in the 1.58 area. If this support is broken, there is not much support until the 1.50 area.

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Financial and Economic News and Comments

US & Canada

  • US GDP rose at a 2.2% annualized rate in Q3 2009, revised down from a previously reported 2.8%, final Q3 US GDP data from the Commerce Department showed, after a -0.7% annualized pace in Q2. The largest downward revisions were for inventories and commercial construction. Personal consumption and government spending were also revised down slightly. The largest positive contributions to Q3 GDP growth were personal consumption, inventories, and government, while the weakest components were international trade and commercial construction. The GDP price index increased at a 0.4% annualized rate, revised down slightly from a previously reported 0.5%. Personal consumption increased at a 2.8% annualized rate in Q3, revised down slightly from a previously reported 2.9%, after a 0.9% decline in Q2. Core PCE grew at a 1.2% annualized pace, revised down slightly from a previously reported 1.3%, following Q2's 2.0% rate.

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  • US existing home sales rose a more-than-expected 7.4% m/m in November, a third consecutive monthly gain, to a 6.54 million annual rate, the highest level in almost three years, from a downwardly revised 6.09 million pace in October, figures from the National Association of Realtors showed. The median price for an existing home was $172,600 in November, down 4.3% y/y, the smallest decline since November 2007. Inventories of existing homes declined 1.3% m/m at the end of November to 3.52 million available for sale. That represented a 6.5-month supply at the current sales pace, the lowest in nearly three years, compared to October's 7.0.

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  • US house prices grew a more-than-expected 0.6% m/m in October, after a downwardly revised 0.4% m/m decrease in September, according to the Federal Housing Finance Agency's monthly house price index. October home prices fell 1.9% y/y.
  • The Richmond Fed manufacturing index unexpectedly fell to -4.0 in December from 1.0 in November, showing manufacturing activity in the central Atlantic region pulled back in December from positive territory after expanding during the previous seven months, the Federal Reserve Bank of Richmond said.

Europe

  • The GfK German sentiment index declined to a lower-than-expected 3.3 in January from a downwardly revised 3.6 in December, indicating Germany's consumer confidence fell for a third month on concerns about rising energy prices and job cuts, according to a report by GfK Group. The economic expectations index increased to 1.7 in December from 0.9 in November, compared with -32.4 a year ago. The income expectations index rose to 15.0 from 6.2, while the index of consumer propensity to buy declined to 21.2 from 26.3.

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  • UK GDP was down 0.2% q/q in Q3 2009, revised up slightly from a previously reported 0.3% q/q decline, due to upward revisions to construction partly offset by downward revisions to production and services, final Q3 GDP data from the Office for National Statistics (ONS) showed, following a 0.6% q/q contraction in Q2. Construction output increased 1.9% q/q in Q3, revised up from a previously reported 1.1% q/q decrease. The Q3 GDP shrank an unrevised 5.1% y/y, following Q2's 5.5% y/y contraction.

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  • The UK current account deficit widened to £4.7 billion ($7.5 billion) in Q3 2009, or 1.3% of GDP, from £4.4 billion in Q2, according to a separate report from the ONS.
  • Switzerland's trade surplus narrowed to CHF2.14 billion ($2.04 billion) in November from a downwardly revised CHF2.44 billion in October, the Swiss Federal Customs Administration said. Exports and imports rose a seasonally adjusted 1.6% m/m and 0.6% m/m, respectively.

Asia-Pacific

  • The Conference Board Australian leading economic index, a measure of future economic activity, fell 0.3% m/m in October, the first fall in five months, to 114.4, after a downwardly revised 0.0% m/m in September and a downwardly revised 1.1% m/m increase in August. The sales to inventories ratio, money supply, share prices, and rural goods exports fell in October, while yield spread, building approvals, and gross operating surplus increased. The coincident economic index, measuring present economic activity, was up 0.1% m/m, the first gain since May, to 112.7 in October, after a downwardly revised 0.0% m/m in September and a downwardly revised 0.4% m/m decline in August.

FX Strategy Update

 EUR/USDUSD/JPYGBP/USDUSD/CHFUSD/CADAUD/USDEUR/JPY
Primary TrendPositiveNegativePositiveNegativeNegativePositiveNeutral
Secondary TrendNeutralNegativeNeutralPositiveNeutralNeutralNeutral
OutlookNegativePositiveNegativePositivePositiveNegativeNeutral
ActionSellBuySellBuyNoneProfit TakenNone
Current1.424691.841.59531.04891.05740.8755130.83
Start Position1.462888.671.64401.0340N/A0.6601N/A
ObjectiveN/AN/AN/AN/AN/AN/AN/A
Stop1.483087.301.6625N/AN/A0.8770N/A
Support1.483089.501.59001.02501.04500.8750128.00
1.400087.001.58001.00501.02000.8600126.00
Resistance1.455092.001.65501.06001.08000.9000135.00
1.475094.501.67501.09001.10000.9300138.00