Despite the heavy lot of economic data, the NY session was lackluster in terms of the price action. Equities closed about flat on the day and the US dollar is commensurately unchanged against the major currencies. The consumer confidence report was the main highlight in terms of data. However, while the headline number beat expectations by coming at 49.5 in November (up from 48.7), the details of the report are ominous. Most importantly, the labor differential â€ which measures jobs plentiful minus jobs hard to get â€ slipped to a new cycle low of -46.6 from -45.9 the prior month. This indicator has a very robust negative correlation with the unemployment rate and suggests we could be flirting with the 11% handle in early 2010.
Moreover, the increase in the headline was driven by a jump in the expectations component, which rose to 68.5 from 67.0 â€ so hope continues to drive confidence here. The present situation index declined marginally o 21.0 from 21.1 prior. In terms of how the holiday shopping season is shaping up, spending plans for major appliances was steady at 23.2 while plans to buy an automobile fell to 4.4 from 4.7 and a house to 2.0 from 2.3 last month. The knee-jerk reaction was for higher risk on the back of the much better headline, but the market reflected on the details and the ensuing weakness in stocks kept the US dollar better bid in the short-term. This would reverse on the back of the FOMC minutes.
In terms of the dollar, one of the key tidbits from the FOMC minutes was that participants noted that the recent fall in the foreign exchange value of the dollar had been orderly and appeared to reflect an unwinding of safe-haven demand in light of the recovery in financial market conditions this year. This suggests less concern on the part of the Fed with regards to a US dollar decline and throws some cold water on Bernanke's recent defense of the buck. In other words, as long as the dollar decline is not sharp, do not expect any intervention on behalf of the greenback. The Fed also marked up its 2010 GDP forecast to 3.0% from 2.7% while lowering the unemployment rate outlook to 9.5% from 9.7%. The figures still seem optimistic and the risk is that unemployment remains sticky above 10% for the entirety of 2010.
In terms of price action, EUR/USD chopped between a 1.4990 high and a low near 1.4920. The pair was sitting near the middle of that range as we headed for the close. USD/JPY was even quieter as the pair oscillated from an 88.35/40 low to an 88.60/65 high â€ talk about a tight range! Cable, meanwhile, flipped and flopped from 1.6530 to 1.6600, going out about -20 pips from the session highs. Gold remained resilient and is on its way for an eighth consecutive daily gain. The precious metal continues to find better sellers ahead of the $1170/75 area but buying interest is also apparent ahead of $1160/55. This range could define the broad price action over the next few days as markets in NY quiet down further on the back of Thanksgiving.