USD Mixed, Continuing Jobless Claims Drop
- USD: Mixed, pressured by improving risk appetite and sharp drop in continuing jobless claims
- JPY: Lower, core machinery orders decline, corporate goods price index slightly higher
- EUR: Lower, German wholesale prices rise, concern about sovereign debt troubles in Greece and Spain
- GBP: Mixed, BOE leaves interest rate policies and level of asset purchase unchanged
- CAD and AUD: AUD & CAD higher, Australia's unemployment rate drops, Canada posts trade surplus
Overview
The USD traded mixed to lower Thursday pressured by improvement in risk appetite as equity markets rally and demand emerges for high-yield currencies. AUD and NZD were supported by report of better than expected Australian employment data and hawkish statements from the RBNZ. CAD was supported by report that Canada's trade balance swung to surplus last more month as exports rose. GBP traded higher in reaction to BOE decision to leave monetary policy and level of its asset purchase plan unchanged. CHF edged higher as the SNB elects to hold monetary policy steady as expected. SNB officials reaffirmed their pledge to prevent appreciation of CHF versus the EUR. EUR edged higher supported by report of a bigger than expected rise in German wholesale prices with gains limited by concern about sovereign debt troubles in Greece and Spain. Tuesday Greece's sovereign debt rating was downgraded. S&P cut Spain's credit outlook to negative Wednesday. US economic data was mixed with initial jobless claims rising more than expected and the trade deficit coming better than expected. Continuing jobless claims were lower. The drop in continuing jobless claims suggests that hiring is stating to increase. US equities rallied and the USD weakened after the report of the sharp drop in continuing jobless claims. USD edged higher midsession versus European currencies as today's improvement in risk appetite generated selective selling of US mainly against the high yield currencies.
Today's US data:
Jobless claims for week of 12/5 rose by 17k to 474k, a reading of -465k was expected. Continuing claims dropped to 5.157mln, a decline of 5.44mln was expected. October trade deficit narrowed -32.94bln, a 36.8bln deficit was expected.
Upcoming US data:
On December 11th, November retail sales will be released expected at 0.4% compared to 1.4% last month and December University of Michigan sentiment expected 68.2 compared to 67.4 last month. October business inventories and November import prices will also be released on December 11th. Business inventories are expected to fall by 0.2% compared to -0.4% last month. Import prices are expected to rise by 1% compared to 0.7% last month.
JPY
JPY traded lower pressured by improving risk appetite as equity markets rally in Europe and the US and in reaction to mixed economic data from Japan. Japan's October core machinery orders declined by 4.5% and November domestic corporate goods price index rose by 0.1%. Japanese press reports that economists expect Japan's growth to slow in first half of 2010. JPY was also pressured by selling in cross to the high-yield currencies with AUD supported by report of much stronger than expected employment growth in Australia. JPY has been strengthening for most of the week supported by unwind of carry trades sparked by weaker equity markets and concern about debt troubles in Dubai, Greece and Spain. In Thursday's trade there appeared to be fresh rewinding of carry trades as equity markets trade higher and economic data from Australia generates optimism about the global recovery. Recent data from Japan raises concern about Japan's economic recovery with Q3 GDP reported weaker than expected and CAPEX spending falling much more than expectations. In response to concern about the risk of possible double-dip recession in Japan the BOJ elected to ease monetary policy last week and expand its funding operations by ¥10trln. Wednesday the Japanese government announced a new $80.6bln stimulus plan. It's not clear whether the BOJ ease and new stimulus from the government will be enough to boost Japan's economy and beat deflation.
Key technical levels to watch in USD/JPY include support at 87.30 the December 4th low with resistance at 89.20 the December 8th high.
EUR
EUR traded mixed Thursday with early support from report of higher than expected German wholesale prices. EUR gains were limited by concern about sovereign debt troubles in Greece and Spain. German November wholesale prices rose by 0.7%, a 0.4% rise was expected. The sovereign debt rating of Greece was cut Tuesday and S&P cut Spain's credit outlook to negative Wednesday. The sovereign debt troubles emerging in Europe generate concern about the cost for the EU to support these deficits and generated some speculation that budget tensions could create enough strain on European monetary union to possibly cause the union to break up. ECB's Nowotny said that he sees no risk of EU breakup because of debt troubles in Greece. ECB's Mersch said that he is confident that Greece will take appropriate action to deal with its deficits. There was little reaction to a statement from ECB President Trichet that interest rates are appropriate. Trichet also said that ECB plans to begin to withdraw liquidity are a separate issue from ECB interest rate policy and should not be read as an indication on the outlook for ECB interest rates. He also said he was confident that Greece will solve its deficit problems and repeated an earlier statement that strong USD is needed for the global economy. The SNB elected to hold rate policy steady as expected and pledged to prevent appreciation of CHF versus the EUR. EUR/CHF traded above 1.5100. The SNB appears comfortable with EUR /CHF rate holding above the current level.
The technical outlook for the EUR is mixed to negative as the EUR breaks trend line support. Expect EUR support at 1.4626 November 3rd low with resistance at 1.4905 the December 9th high.
GBP
GBP traded mixed initially supported by today's announcement that the BOE left interest rate policy unchanged and will maintain its current level of asset purchases. The BOE left interest rates unchanged at a record low 0.5% and the level of asset purchases at £200bln. The BOE expanded its asset purchase program by £25bln to £200bln last month. The BOE is expected to wait until the release of the February inflation report before it decides to make any adjustments in monetary policy or in the size of its asset purchase plan. GBP remains vulnerable to concern about rising UK budget deficit and UK bank exposure to Dubai World debt. UK Chancellor Darling presented the UK budget Wednesday. Darling proposed a one time 50% tax on banker's bonuses over £25k. The one time levy is expected to yield £550mln. Darling went on to outline plans to halve the UK deficit to 12.6% of GDP. Darling said that public borrowing in the current financial year would rise to £178bln. This is 3bln higher than the government's prior forecast. According to Darling the deficit will be cut by £82bln in 2014-15, which would be equal to 4.4% of GDP. Public sector debt is expected to peak at 78% of GDP in 2014-15. It's not clear if Darling's pledge to reduce the UK budget deficit will be enough to satisfy the ratings agencies. GBP traded sharply lower Tuesday pressured by report of weaker than expected UK manufacturing output, concern about UK budget deficit and UK exposure to Dubai World debt. UK October manufacturing output was flat. Moody's warned that the UK may lose its AAA debt rating if the UK government does not take action to reduce the ballooning budget deficit. Monday UK press reported that HSBC and RBS may have significant exposure to Dubai debt. According to the Financial Times, UK banks have that exposure of 5bln to Dubai World debt.
On December 11th November PPI will be released expected at 0.5% compared to 0.3% last month.
The technical outlook for GBP is negative as GBP trades below 1.6300. Expect near-term support at 1.6120 with resistance at 1.6516 the December 7th high.
CAD
CAD traded higher supported by a higher commodity prices, firmer US equity markets and report of much better than expected Canadian trade balance. Canada posted a 428mln trade surplus last month. The trade had expected Canada to post a 700mln trade deficit. The improvement in Canada's trade balance reflected a 3.4% rise in exports. The rise in exports suggests that the strength of the CAD is less of a threat to the Canadian recovery. The strength of the CAD is helping to keep inflation in check. The trade report said that import prices were down 1.2%. Today's Canadian trade report will likely reduce BOC verbal intervention concerning CAD strength and encourage the BOC to maintain steady rate policy has inflation pressures remain in check. The BOC elected Tuesday to hold rate policy unchanged and reaffirmed its commitment to keep interest rates low through mid-2010 as long as inflation remains low. BOC officials also toned down their rhetoric expressing concern about the impact of the CAD on the Canadian recovery. CAD was also supported by report of much better than expected employment data in Australia and the US. The improvement in Australia's employment outlook sparked demand for high-yield currencies and boosts optimism about the global recovery. The drop in US continuing jobless claims is positive for the North American growth outlook and Canada's export trade. CAD price direction will continue to track the direction of commodities, equities and risk sentiment.
On December 11th October new house price index will be released expected at 0.9% compared to 0.5% last month.
The technical outlook for CAD is mixed as USD/CAD trades below 1.0600. Look for near-term support at 1.0380 the October 21st low with resistance at 1.0780 the November 9th high.
AUD
AUD traded sharply higher supported by report of much better than expected Australian employment and improving risk sentiment as equity markets rally in Europe and the US. Australia's November unemployment rate declined to 5.7%, a reading of 5.9% was expected. Job's growth rose by 31.2k, jobs growth was expected to be just 5k. The improvement in Australia's employment outlook is confirmation that the domestic economy is strengthening and the report will likely encourage speculation that the RBA will continue to hike rates in 2010. Some analysts are beginning to look for a 50 bps RBA rate hike in February. The RBA's Debelle said that the interest rate differential is favorable to the AUD. AUD was also supported by spillover strength in the NDZ. NDZ rallied in reaction to the RBNZ's decision to leave monetary policy unchanged and a statement that central bank will begin removing stimulus mid-2010. Report of a sharp drop in US continuing jobless claims and narrowing of the US trade deficit fueled optimism about the global recovery and added support to the AUD. The improvement in US trade balance reflects higher export sales. Higher export sales suggest that the global economy may be strengthening.
The technical outlook for the AUD is positive as the AUD rallies above 9100. Expect AUD support at 9090 the December 10th low with resistance at 9378 the November 17th high.
By Michael J. Malpede
Easy Forex
Michael J. Malpede is Chief Market Analyst with Easy-Forex® and has previously been featured on Bloomberg TV, Bloomberg radio, Reuters, MarketWatch, Wall Street Journal, Chicago Tribune, Chicago Sun Times, Toronto Star and Nikkei press. In analyzing the markets, he draws from 29 years of Foreign Exchange Research as a Foreign Exchange Analyst.
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