- Unable to build on its Friday rally, the dollar traded mixed on Monday. Federal Reserve Chairman Ben Bernanke said a fragile economic recovery meant moderate pace of economic expansion due to formidable headwinds including a weak labor market and tight credit. He also said inflation was likely to remain subdued, signaling the Fed wouldn't hike interest rates until far in the future. We believe the Fed won't change its monetary stance anytime soon; however, our leading indicators for employment and inflation indicate firming conditions, increasing the risk of an earlier-than-expected Fed exit strategy. The S&P 500 declined 2.73 to 1,103.25. The yen gained against all major currencies following its last-week losses. Sterling was little changed. The Canadian dollar was supported by stronger-than-expected building permits ahead of Tuesday's Bank of Canada interest-rate decision. The BOC is expected to maintain its overnight target rate at 0.25%. The Australian dollar dropped, testing the important support from the long-term uptrend.
- The EUR/USD fell to a one-month low as German manufacturing orders unexpectedly decreased. After breaking its long-term uptrend, the pair is trading at the lower level of its recent trading range. There is support in the 1.48-1.47 area. If this support is broken, the EUR/USD technical outlook will turn bearish with a possible test of the 1.45 support.
Financial and Economic News and Comments
US & Canada
- US consumer credit fell for a ninth consecutive month in October, falling a less-than-expected $3.51 billion, or 1.7% at an annual rate, to $2.48 trillion, after dropping $8.77 billion in September that was less than previously reported, figures from the Federal Reserve showed, registering the longest stretch of declines since records began in 1943.
- Canada's building permits jumped a more-than-anticipated 18.0% m/m in October, a third consecutive monthon- month gain, to C$6.12 billion ($5.76 billion), the highest level since September 2008, after an upwardly revised 3.2% m/m increase in September, according to figures from Statistics Canada. The October gain was led by increases in single-family and non-residential permits. October building permits declined 12.7% y/y.
- Germany's seasonally adjusted manufacturing orders unexpectedly declined 2.1% m/m in October following seven consecutive monthly increases, led by a 3.5% m/m decrease in foreign orders, according to data from the Federal Ministry of Economics and Technology. The September gain was revised upward to 1.3% m/m from a previous reported 0.9% m/m. October manufacturing orders fell a non-seasonally adjusted 8.5% y/y, following September's revised 12.8% y/y drop.
- The Sentix eurozone investor sentiment index increased to -5.5 in December from -7.0 in November, indicating eurozone investor confidence climbed for a fifth consecutive month, data released by Sentix showed. The current situation index improved to -19.5 in December from -24.3 in November. The expectations index declined to 9.5 from November's 12.0.
- Switzerland's real retail sales rose a more-than-expected 3.1% y/y in October, the first gain in three months, after a revised 2.1% y/y decline in September, according to data from the Federal Statistical Office. Nominal retail sales in October increased 2.1% y/y.
- Australia's construction sector contracted in November following modest growth in October and September. The Australian Industry Group/Housing Industry Association performance of construction index declined to 47.6 in November from 50.9 in October, led by contractions in new orders (45.6), activity (49.5) and employment (45.8), according to an AiG/HIA report.
FX Strategy Update