- The dollar traded mixed on Tuesday, sharply lower versus the yen but higher against the commodity currencies. China announced it will tighten its monetary stance by increasing banks' reserve requirements by 50 basis points starting January 18. The greenback was also pressured as US short-term interest rates continued to decline and commodity prices fell. The US trade deficit widened more than expected as surging oil prices increased imports. The S&P 500 fell 10.76 to 1,136.22. Sterling rose on rises in UK retail sales and house prices. The euro declined modestly. The overbought commodity currencies fell from about 2-month highs on the Chinese tightening move. The Australian dollar was pressured by weaker-than-expected Australian mortgage growth and the Canadian dollar fell on Canada's unexpected trade deficit.
- After its last-week unsuccessful attempt to penetrate the long-term downtrend and the 200-day moving average, the USD/JPY fell for a third consecutive day as US interest-rate advantages eased further. Today the pair broke its short-term uptrend, indicating further declines. Significant support is in the 90 area. If this support holds, it will create a potential inverted head-and-shoulder and increase a chance of penetrating the long-term downtrend and reversing the two-and-a-half-year decline (see our January 5 report). A penetration of the longterm diagonal resistance in the 93-94 area will lead to a very bullish USD/JPY outlook.
Financial and Economic News and Comments
US & Canada
- The US trade deficit in goods and services widened 9.7% m/m in November to a larger-than-expected $36.4 billion, the highest level since January, from a revised $33.2 billion deficit in October, according to figures from the Commerce Department. Imports rose 2.6% m/m to $174.6 billion in November, reflecting a rise in oil prices. Exports grew 0.9% m/m, a seventh straight gain, to $138.2 billion, the highest level in a year, led by food and autos/parts.
- Canada's trade balance unexpectedly showed a trade deficit of C$344 million ($333 million) in November after an upwardly revised C$503 million surplus in October, data released by Statistics Canada showed. The November deficit was led by increasing imports of energy, machinery and automobiles. Exports increased 1.1% m/m to C$31.6 billion in November as energy shipments rose 6.2% m/m. Imports increased 3.9% m/m to C$31.9 billion, with energy imports rising 13.1% m/m.
- Canada's new housing prices grew 0.4% m/m in November, a fifth consecutive month-on-month gain, after a 0.3% m/m increase in October, Statistics Canada reported. November new housing prices slipped 1.4% y/y following October's 2.1% y/y decrease, with continued year-on-year drops in Western Canada, albeit at a slower rate than in prior months.
- The UK deficit on trade in goods and services shrank more than expected to £2.9 billion ($4.7 billion) in November from a revised £3.1 billion deficit in October (originally reported as a £3.2 billion deficit), and the deficit on trade in goods narrowed more than expected to £6.8 billion from October's revised £7.0 billion deficit (originally reported as a £7.1 billion deficit), according to figures from the Office for National Statistics. Exports were broadly unchanged, but imports declined £0.2 billion. The deficit with EU countries widened to £3.8 billion in November from a £3.5 billion deficit in October, while the deficit with non-EU countries narrowed to £3.0 billion from October's £3.5 billion deficit.
- UK house prices increased a more-than-expected 0.6% y/y nsa in November after a 2.2% y/y decline in October, according to data from the Department of Communities and Local Government. November house prices grew 1.7% m/m sa, a seventh consecutive month-on-month gain.
- The seasonally adjusted net balance of surveyors reporting increasing rather than decreasing UK house prices was at a reading of 30% in December, unexpectedly down from 35% in November, a monthly survey from the Royal Institution of Chartered Surveyors showed, suggesting UK house prices continued to increase but at a slightly more modest pace.
- UK retail sales gained for a fourth consecutive month in December, rising 4.2% y/y on a like-for-like basis after a 1.8% y/y November increase, compared with a 3.3% decrease in December 2008, the British Retail Consortium reported. On a total basis, retail sales gained 6.0% y/y in December, the most for the month since 2005, after a 4.1% y/y advance in November, compared with a 1.4% decline in December 2008.
- Japan's current-account surplus widened for a fourth consecutive month in November, growing 76.9% y/y to a higher-than-expected ¥1.1 trillion ($11.9 billion), figures released by the Ministry of Finance showed. Exports fell 7.0% y/y in November, the smallest fall in 14 months, after a 24.6% y/y drop in October. Imports slipped 18.2% y/y, following October's 37.7% y/y drop.
- Japan's merchant confidence climbed in December for the first time in three months. The Japanese current conditions index increased to a higher-than-expected 35.4 last month, rebounding from a record 7-point drop to 33.9 in November, according to the Cabinet Office's latest economy watchers survey. The future conditions index rose to 36.3 in December from 34.5 the prior month.
- Australia's home-loan approvals fell a more-than-expected 5.6% m/m in November, the largest fall in 18 months, to 59,516, after a revised 1.9% m/m decline in October, according to figures from the Australian Bureau of Statistics. The total value of loans decreased 1.6% m/m to A$22.8 billion ($21.2 billion) in November. The value of lending for owner occupied housing fell 2.9% m/m to A$16.5 billion in November while the value of lending for investment housing increased 2.1% m/m to A$6.3 billion.
FX Strategy Update
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