Greenback Lower Ahead of Payroll Data

The dollar declined against most major currencies Thursday after President-elect Barack Obama said the US risks sinking deeper into an economic crisis unless urgent actions are taken. The greenback traded lower in thin trading ahead of Friday's US payroll report expected to show the economy lost more than half a million jobs in December for the second consecutive month. Sterling rose to a 3-week high after the Bank of England cut its key interest rate less aggressively than some had expected. The euro and yen gained for a second day. The Canadian dollar advanced and the Australian dollar recovered most of earlier losses.

The EUR/JPY fell for a fourth day as US stocks declined modestly. The pair was unable to penetrate the resistance from the long-term downtrend. Having followed the equity market pretty closely, the EUR/JPY is a good indicator of investor risk appetite. US stocks fell just modestly ahead of Friday's employment report that is expected to be gloomy. However, US employment losses are unlikely to be worse than expected, which could give the stock market a boost and push the pair through the diagonal resistance.

Financial and Economic News and Comments

US & Canada

• US initial jobless claims unexpectedly declined 24,000 to 467,000 in the week ending January 3, the lowest level in almost three months, the Labor Department reported. The 4-week moving average of new claims fell to 525,750 compared with the prior week's 552,750. Continuing jobless claims rose to 4.6 million in the week ending December 27, the most since 1982. The unemployment rate among people eligible for benefits held at 3.4%.

• President-elect Barack Obama warned of a prolonged economic crisis, urging Congress to act urgently on his stimulus plan that may total $775 billion. 'I don't believe it's too late to change course, but it will be if we don't take dramatic action as soon as possible,' Obama said at George Mason University. 'If nothing is done, this recession could linger for years.'
• US consumer credit fell a record $7.9 billion to $2.57 trillion in November, the first back-to-back monthly drop since 1992, the Federal Reserve said.
• Canada's Ivey PMI came in at a better-than-expected 39.1, the lowest since the index started in January 2001, down slightly from November's 40.2.

Europe

• The eurozone GDP contracted 0.2% q/q in Q3 2008 and the economy slowed to a 0.6% y/y growth rate, final GDP data from Eurostat showed.
• European confidence in the economic outlook dropped to 67.1 in December, the lowest since records started in 1985, from 74.9 in November, data from the European Commission showed. Consumer confidence declined to -30 in December from -25 in November amid expectations for a 1 point decline to -26. Sentiment among businesses fell to -3.17 from November's downwardly revised -2.10. Industrial confidence dropped to a record low of -33 from -25. Services confidence declined more than expected to -17 from -12.
• The eurozone unemployment rate rose to a 2-year high of 7.8% in November, in line with forecast, from 7.7% in October, according to Eurostat. Euro-area unemployment rose by 202,000 in November.
  

• German factory orders, adjusted for seasonal swings and inflation, declined a more-than-expected 6.0% m/m in November after October's downwardly revised 6.3% m/m drop, the Economy Ministry said. Factory orders plunged 24.0% y/y sa.
  

• Germany's exports fell a record 10.6% m/m in November and imports fell 5.6% m/m, the Federal Statistical Office said. The German trade balance was 10.7B in November.

• The Bank of England, as forecast, cut its benchmark interest rate 50 basis points to 1.5%, the lowest since the BOE's creation in 1694.
• Switzerland's unemployment rate increased to 2.8% in December, the highest in 19 months, from 2.7% in November, the Swiss Federal Statistical Office reported.
• Switzerland inflation decelerated more than expected to the lowest point in 15 months. The Swiss CPI declined 0.5% m/m in December after a 0.7% m/m decline in November. The inflation rate slowed to 0.7% y/y from November's 1.5% y/y.

Asia-Pacific

• Australian building approvals dropped 12.8% m/m in November, the fifth consecutive monthly decline and the most since 2002, following October's upwardly 3.1% m/m decline, data from the Australian Bureau of Statistics showed. Building approvals plunged 34.7% y/y after October's upwardly revised 23.6% y/y drop.
• Australia's exports fell for the first time in nine months, declining 4% m/m and halving the trade surplus to A$1.45 billion ($1 billion), ABS data showed.
• The Australian construction sector contracted for the 10th straight month in December, with the AiG's performance of construction index falling to 30.9 in December, marking a record-low for 2008, from 32.0 in November, a report by the Australian Industry Group and Housing Industry Association showed.
  

FX Strategy Update

Hans Nilsson
Capital Market Services, L.L.C.
www.cmsfx.com

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