Better economic data and a rather status-quo Bernanke helped risk assets extend gains in NY trading, sending the US dollar commensurately lower. Headline retail sales blew away expectations, rising 1.4% in October on a pop in auto sales. Moreover, the control retail sales number (ex gasoline, auto dealers and building materials) was actually up a decent +0.5% on the month and this follows +0.4% in September and +0.5% in August. This really limited the downside for risky assets all day. Equities liked the details of the report even more than the headline and were up about 1.5% by the time the dust settled.
Fed Chairman Bernanke gave his assessment on the economy and most of the speech was more of the same. He highlighted the risks to growth from the consumer spending side and noted that inflation worries are premature. The bombshell for the market was the comment on the US dollar. The wires ran with Fed will help insure dollar is strong and traders promptly took EUR/USD down to the 1.4880 session lows. The actual line, however, was our commitment to our dual objectives, together with the underlying strengths of the U.S. economy, will help ensure that the dollar is strong and a source of global financial stability â€ quite a difference!
The clarity on the so-called dollar-positive commentary saw EUR/USD promptly retrace losses and test the air above the 1.50 mark once again. The pair continues to struggle with that area and has failed to close above it since late October, however. One of the better correlated pairs with equities, GBP/USD, had a nice day as well. Cable soared from a NY open near 1.6735 and was sitting by 1.6830 at last look.
Gold went on another tear, adding more than $20 to near the $1140 zone as NY trading was coming to a close. We wrote a few weeks ago that gold was seasonally poised for some big gains into year end with an $1150 target in mind. If today's move is sustained over the next few days, however, we could be staring $1300 in the face by the end of December. In the short-term, the upside remains in focus while above the $1138 hourly trendline.