- The dollar traded mixed on Tuesday, higher against the euro but lower against the yen. US economic data were mixed; pending home sales dropped more than anticipated while factory orders posted their seventh gain in eight months. The S&P 500 rose 3.53 to 1,136.52. The euro fell despite eurozone annual inflation accelerating to a 10-month high. Sterling fell to the important 1.59-1.60 support. The Australian dollar was little changed. The USD/CAD was marginally below the important 1.04 support.
- The USD/JPY fell for a second day as US interest-rate advantages eased. Japan's Finance Minister Hiroshida Fujii resigned due to health reasons. Last month the pair rallied as both the 2-year and 10-year US/Japan interest differentials expanded. The USD/JPY is short-term overbought and between significant support in the 90 area and resistance around 94. We think the pair may move higher and test the resistance from the longerterm downtrend in the 94 area. This will be tough to penetrate as it is the two-and-a-half-year downtrend. However, a penetration of this long-term diagonal resistance will be bullish for the USD/JPY.
Financial and Economic News and Comments
US & Canada
- US pending home sales plunged a much more-than-expected 16.0% m/m in November, the first drop in 10 months, with the NAR US pending home sales index falling to 96.0 from October's upwardly revised 114.3, data from the National Association of Realtors showed, following the prior months' sales surges caused by buyers rushing to beat the original deadline for a government tax-credit program. Despite the month-on-month steep drop, November pending home sales rose 15.5% y/y.
- US factory orders climbed a more-than-expected 1.1% m/m in November, the seventh gain in eight months, to a seasonally adjusted $365.30 billion, after an upwardly revised 0.8% m/m increase in October, figures from the Commerce Department showed, indicating US manufacturing is steadily recovering and signaling strongerthan- expected Q4 2009 GDP growth. Excluding transportation, factory orders grew 1.9% m/m to a seasonally adjusted $327.04 billion, following October's upwardly revised 1.0% m/m advance. November factory orders declined 1.6% y/y nsa and declined 0.5% y/y nsa excluding transportation.
- Canada's industrial product prices grew a more-than-expected 1.0% m/m in November, the largest gain since June 2008, after two consecutive month-on-month declines, according to data from Statistics Canada. Raw materials costs increased a higher-than-anticipated 2.2% m/m after October's 2.5% m/m rise, continuing their upward trend that started in January 2009.
- The eurozone inflation rate rose as expected to 0.9% y/y in December, the highest since February 2009, from 0.5% y/y in November; however, remaining well below the European Central Bank's inflation target, a flash CPI estimate released by Eurostat showed.
- Germany's unemployment unexpectedly fell a seasonally adjusted 3,000 to 3.42 million in December, a sixth consecutive monthly fall, after declining a revised 1,000 in November, according to figures from the Federal Labor Agency. The seasonally adjusted unemployment rate was unchanged at 8.1%, as forecast.
- The pace of contraction in the UK construction sector slowed for a second month in December. The CIPS/Markit UK construction PMI increased to 47.1 last month from 47.0 in November and 46.2 in October, according to data released by Markit Economics and the Chartered Institute of Purchasing and Supply. However, the December number was lower than expected.
- Japan's monetary base rose 5.2% y/y in December, the largest gain in four months, after a 3.8% y/y increase in November, data from the Bank of Japan showed.
- Australian new home sales increased 0.3% m/m in November after two consecutive declines of 6.0% m/m in October and 4.5% m/m in September, according to the latest Housing Industry Association survey of Australia's largest builders. Costly planning delays, land and skilled labor shortages and increasing interest rates may dim the prospect of a strong uptrend in new home building, the HIA said.
- The Australian Industry Group/Commonwealth Bank performance of services index declined to 50.0 in December from 52.5 in November, indicating Australia's services activity was flat last month after expanding in November and October, a report by the AiG and Commonwealth Bank of Australia showed.
FX Strategy Update