Daily Forex Outlook – Pound Soars into the New Year

Here are the latest Financial News:

Pound Soars into the New Year

CURRENCY TRADING SUMMARY – 31st December (00:30GMT)

U.S. Dollar Trading (USD) had an interesting trading day as strength remained but only against certain currencies. Underpinning the USD was December Chicago PMI jumping to 60.0 vs. 56.1 previously. DJIA +3 points closing at 10548, S&P +1 points closing at 1126 and NASDAQ -2 points closing at 2291. Looking ahead, Weekly Jobless Claims forecast at 460k vs. 452k previously. Market’s closed New Years Day

The Euro (EUR) slipped under 1.4300 after strong Chicago PMI data before rebounding later in the US session. EUR/JPY continued to rally and provided some solid support whilst EUR/GBP plummeted as the Pound surged into Year end. Overall the EUR/USD traded with a low of 1.4273 and a high of 1.4363 before closing at 1.4340.

The Japanese Yen (JPY) was sold pretty much across the board as stocks remained higher and expectations grew that the Yen will weaken more throughout 2010. USD/JPY tracked through resistance at 92.50 to touch 92.80. Overall the USDJPY traded with a low of 91.96 and a high of 92.79 before closing the day around 92.50 in the New York session.

The Sterling (GBP) was the best performer of the day as the sentiment and attitude changed dramatically from Tuesday. The pair on a weak footing below 1.5900 in Europe but then began to rally in the US session and this continued for the rest of the day not only on the major but against the EUR, JPY and AUD. Overall the GBP/USD traded with a low of 1.5831 and a high of 1.6098 before closing the day at 1.6080 in the New York session. Looking ahead, December Nationwide HPI forecast at 0.3% vs. 0.5% previously.

The Australian Dollar (AUD) fell in sympathy with the Euro for most of the day until finding support towards the 0.8900 and rallying quietly in the US session. AUD/JPY provided support as did the continuation of Oil’s rally. Holding the pair back was constant AUD/NZD selling and sluggish Gold. Overall the AUD/USD traded with a low of 0.8900 and a high of 0.8961 before closing the US session at 0.8945.

Oil & Gold (XAU) was on the back foot most of the day as the USD retained a strong footing. Overall trading with a low of USD$1096 and high of USD$1109 before ending the New York session at USD$1097 an ounce. Slightly bearish Inventory Numbers failed to stem the rise in Crude as the pair tested $80 a barrel. Crude Oil was up $0.63 ending the New York session at $79.50.

TECHNICAL COMMENTARY

Currency	Sup 2	Sup 1	Spot	Res 1	Res 2
EUR/USD	1.4218	1.4234	1.4350	1.4458	1.4481
USD/JPY	91.00	91.41	92.50	92.77	93.30
GBP/USD	1.5691	1.5708	1.6080	1.6095	1.6100
AUD/USD	0.8820	0.8857	0.8960	0.8993	0.9011
XAU/USD	1074.00	1079	1094.00	1108	1114.00
OIL/USD	75.00	78.00	79.50	80.00	82.00

Euro – 1.4350

Initial support at 1.4234 (Dec 24 low) followed by 1.4218 (Dec 22 low). Initial resistance is now located at 1.4458 (Dec 29 high) followed by 1.4481 (Oct 2 former low)

Yen – 92.50

Initial support is located at 91.41 (Dec 28 low) followed by 91.00 (Dec 22 low). Initial resistance is now at 92.77 (Dec 30 high) followed by 93.30 (Sept 7 High).

Pound – 1.6080

Initial support at 1.5708 (Oct 13 low) followed by 1.5691 (0.382 of 1.3504-1.7043). Initial resistance is now at 1.6095 (Dec 29 high) followed by 1.6100 (Dec 22 high).

Australian Dollar – 0.8960

Initial support at 0.8857 (Dec 29 low) followed by the 0.8820 (Dec 25 low). Initial resistance is now at 0.8993 (Dec 29 high) followed by 0.9011 (Dec 17 high).

Gold – 1094

Initial support at 1079 (Dec 23 low) followed by 1074 (Dec 22 low). Initial resistance is now at 1108 (Dec 29 high) followed by 1114 (Dec 28 high) .

Oil – 79.50

Initial support at 78.00 (Intraday support) followed by 75.00 (Intraday support). Initial resistance is now at 80.00 (Key Psychological Level) followed by 82.00 (November High).

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Daily Forex Outlook – Dollar Buyers Return

Here are the latest Financial News:

Dollar Buyers Return

CURRENCY TRADING SUMMARY – 30th December (00:30GMT)

U.S. Dollar Trading (USD) initial Dollar weakness during the European session was reversed aggressively in the US session as Dollar buyers returned in force. Stocks remained buoyant globally and this helped risk currencies such as the AUD outperform. December CB Consumer Confidence jumped to 52.9 vs. 49.5 previously. DJIA -1 points closing at 10545, S&P -1 points closing at 1126 and NASDAQ -2 points closing at 2288. Looking ahead, December Chicago PMI forecast at 55 vs. 56.1 previously. Also released, Weekly Crude Oil inventories forecast at -1.7 vs. -4.9 previously.

The Euro (EUR) a break higher into the mid 1.44’s was reversed by over a cent in the US session as the Dollar bulls roared back to life. Stops were hit in both directions and have left the technical situation very messy albeit with a bearish tinge. Overall the EUR/USD traded with a low of 1.4331 and a high of 1.4461 before closing at 1.4355.

The Japanese Yen (JPY) Dollar strength carried the pair over Y92 for fresh 2 month highs and most crosses were higher. NZD/JPY and AUD/JPY did especially well as the interest rate outlook between Japan and New Zealand widened. Overall the USDJPY traded with a low of 91.51 and a high of 92.10 before closing the day around 92.00 in the New York session. Looking ahead, December PMI forecast at 52.3.

The Sterling (GBP) suffered the most from the change in Dollar sentiment as the pair crashed from above 1.6000 to below 1.5900 for a 200 pip daily range. Sentiment is still very fragile for the pound and further losses are possible into the year end given the failed attempt to break back above the 1.6000 level. Overall the GBP/USD traded with a low of 1.5865 and a high of 1.6071 before closing the day at 1.5900 in the New York session.

The Australian Dollar (AUD) was second only to it’s neighbour the New Zealand Dollar as risk was expressed through both these high yielding currencies. Expectations for a first half 2010 rate rise in New Zealand and three rate rises already this year in Australia have helped the two commodity currencies gain heavily this year. Overall the AUD/USD traded with a low of 0.8859 and a high of 0.8996 before closing the US session at 0.8940.

Oil & Gold (XAU) was relatively quiet having a small rally before retreating below the $1100 level in the US session. Overall trading with a low of USD$1096 and high of USD$1109 before ending the New York session at USD$1097 an ounce. Crude Oil had a flat day with the market consolidating recent gains. Crude Oil was up -$0.01 ending the New York session at $78.76.

TECHNICAL COMMENTARY

Currency	Sup 2	Sup 1	Spot	Res 1	Res 2
EUR/USD	1.4218	1.4324	1.4350	1.4458	1.4481
USD/JPY	90.16	91.00	92.00	92.08	92.32
GBP/USD	1.5703	1.5868	1.5890	1.6068	1.6100
AUD/USD	0.8735	0.8783	0.8940	0.8993	0.9011
XAU/USD	1074.00	1095	1098.00	1119	1141.00
OIL/USD	75.00	78.00	78.70	80.00	82.00

Euro – 1.4350

Initial support at 1.4324 (Dec 24 low) followed by 1.4218 (Dec 22 low). Initial resistance is now located at 1.4458 (Dec 29 high) followed by 1.4481 (Oct 2 former low)

Yen – 92.00

Initial support is located at 91.00 (Dec 22 low) followed by 90.16 (Dec 18 low). Initial resistance is now at 92.08 (Dec 29 high) followed by 92.32 (Oct 27 High).

Pound – 1.5890

Initial support at 1.5868 (Dec 29 low) followed by 1.5708 (Oct 13 low). Initial resistance is now at 1.6068 (Dec 29 high) followed by 1.6100 (Dec 22 high).

Australian Dollar – 0.8940

Initial support at 0.8783 (Dec 24 low) followed by the 0.8735 (Dec 23 low). Initial resistance is now at 0.8993 (Dec 29 high) followed by 0.9011 (Dec 17 high).

Gold – 1098

Initial support at 1095 (Dec 24 low) followed by 1074 (Dec 22 low). Initial resistance is now at 1119 (Dec 21 high) followed by 1141 (Dec 17 high) .

Oil – 78.70

Initial support at 78.00 (Intraday support) followed by 75.00 (Intraday support). Initial resistance is now at 80.00 (Key Psychological Level) followed by 82.00 (November High).

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Daily Forex Outlook – Holiday Trading Takes Over

Here are the latest Financial News:

Last week’s currency trading review

The Dollar consolidated against most currencies as the recent USD rally faded into Christmas. Economic Data was mixed with Q3 GDP being revised to 2.2% vs. 2.8% whilst Existing home sales gained 7% in November. Weekly Unemployment Claims fell to 452k vs. 480k previously but this was offset by New Homes sales slumping over 10% in November. The Euro tested the downside before rebounding into Christmas with strong commodities and improving risk appetite. The market is still focusing on Greece and other weaker European nations which are in danger of Sovereign Debt rating downgrades. The EUR/USD gained 0.33% closing at 1.4378, after opening the week at 1.4331.

The Japanese Yen saw widespread weakness as the Nikkei continued to rally and the Yen carry trade spurred back into action. CAD/JPY, EUR/JPY and AUD/JPY all enjoyed solid gains. The USD/JPY gained 1.18% closing at 91.53 after opening the week at 90.45. The GBP underperformed most currencies as cable slipped below the key 1.6000 level and GDP failed to inspire. Q3 GDP was revised to -0.2% from -0.3%. GBP/USD fell -1.23% closing at 1.5963 after opening at 1.6159. The AUD closed well above lows but was under considerable pressure as the market scaled back expectations of aggressive rate hikes in 2010. Also hurting the Aussie is the continued weakness seen in Gold which fell below $1100 and has fallen over $100 an ounce in the past 2 weeks. The AUD/USD fell -0.82% closing at 0.8826 after opening at 0.8898.

The forex trading week preview

In the States; On Tuesday, October C&S house prices are forecast at -7.3% vs. -9.36% y/y. Also released, December Consumer Confidence forecast at 53 vs. 49.5 previously. On Wednesday, Chicago PMI forecast at 55.1 vs. 56.1 previously. On Thursday, Weekly Jobless Claims are forecast at 463k vs. 452k previously. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone; On Tuesday, December German Preliminary CPI is forecast at 0.7% vs. 0.4% previously. In the UK; On Thursday, December Nationwide HPI forecast at 0.3% vs. 0.5%. We will provide our previews and reviews of these data releases in the daily summary.

In Japan; no data this week. In Australia; Monday and Friday bank holiday’s.. We will provide our previews and reviews of these data releases in the daily summary.

TECHNICAL COMMENTARY

Currency	Sup 2	Sup 1	Spot	Res 1	Res 2
EUR/USD	1.4218	1.4324	1.4385	1.4436	1.4481
USD/JPY	90.16	91.00	91.60	91.87	92.32
GBP/USD	1.5903	1.5922	1.6005	1.6023	1.6100
AUD/USD	0.8735	0.8783	0.8875	0.8925	0.9011
XAU/USD	1074.00	1095	1106.00	1119	1141.00
OIL/USD	75.00	78.00	78.70	80.00	82.00

Euro – 1.4385

Initial support at 1.4324 (Dec 24 low) followed by 1.4218 (Dec 22 low). Initial resistance is now located at 1.4436 (23.6% retrace of 1.5141 – 1.4218) followed by 1.4481 (Oct 2 former low)

Yen – 91.60

Initial support is located at 91.00 (Dec 22 low) followed by 90.16 (Dec 18 low). Initial resistance is now at 91.87 (Dec 22 high) followed by 92.32 (Oct 27 High).

Pound – 1.6005

Initial support at 1.5922 (Dec 22 low) followed by 1.5903 (Oct 14 low). Initial resistance is now at 1.6023 (Dec 25 high) followed by 1.6100 (Dec 22 high).

Australian Dollar – 0.8875

Initial support at 0.8786 (Dec 24 low) followed by the 0.8735 (Dec 23 low). Initial resistance is now at 0.8925 (Dec 21 high) followed by 0.9011 (Dec 17 high).

Gold – 1106

Initial support at 1095 (Dec 24 low) followed by 1074 (Dec 22 low). Initial resistance is now at 1119 (Dec 21 high) followed by 1141 (Dec 17 high) .

Oil – 78.70

Initial support at 78.00 (Intraday support) followed by 75.00 (Intraday support). Initial resistance is now at 80.00 (Key Psychological Level) followed by 82.00 (November High).

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US Morning Notes – USD lower on weak US housing data, profit taking

Here are the latest Financial News:

FX Highlights

• The USD is trading lower with most of Europe closed and trading conditions extremely thin, USD is pressured by Wednesday’s report of weak US new home sales, the weak housing data will encourage the Fed to maintain low interest rates, Fed’s Bullard expects interest rates remain near zero through 2010 as central banks seek to keep the recovery on track, EUR supported by Greek budget cuts, commodities currencies supported by higher crude and gold prices
• Focus turns to today’s release of US jobless claims and durable goods
• Japan’s Q4 business survey sentiment index rises by +13.2, BOJ minutes for the November policy meeting state that deflation is a major economic risk and monetary policy will remain extremely accommodative, a number BOJ members wanted to be careful in using the term deflation, Japan’s November CPI would be released Friday, BOJ Governor Shirakawa says the BOJ will act if markets become unstable, Japan’s government is expected to cut some spending due to slumping tax revenue, JPY higher
• Fed’s Bulllard favors leaving rates at zero and addressing economic issues by adjusting the Fed’s balance sheet
• The 2010 Greek budget was approved, Greece will cut $11bln from the deficit in response to recent credit ratings downgrade of Greece’s sovereign debt, EUR higher
• VIX index declined to a 15 month low, this suggests investors are less risk averse and expect less stock market volatility
• U.S. Congress passes approval of a hike in the debt limit by $290bln, the debt limit hike is enough to keep financing the record US deficit for another two months, the Senate approves US healthcare bill, the bill must be reconciled with the House health care bill
• U.S. Treasury Department says that the TARP program has generated $16bln in profit so far
• US equity markets set to open higher, European equities 0.25% higher, Nikkei closed 159 points higher

Upcoming Events

• US- Thursday, initial jobless claims for week ending 12/19 will be release d expected at 470k compared to 480k last month along with November durable goods expected at 0.5% compared to -0.6% last month
• CAN-Thursday, no major Canadian economic data is due for release today

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Daily Forex Outlook – New Home Sales Slump

Here are the latest Financial News:

CURRENCY TRADING SUMMARY – 24th December (00:30GMT)

U.S. Dollar Trading (USD) November Home Sales slumped to 355k vs. 442k forecast and invited traders to rethink the recent Dollar rally and the timing of US interest rate hikes. This combined with a significant rally in Oil to push most pairs higher against the Greenback. DJIA +2 points closing at 10466, S&P +2 points closing at 1120 and NASDAQ +16 points closing at 2269. Looking ahead, Weekly jobless claims are forecast at 470k vs.480k previously. Also Released, November Durable Goods forecast at 0.5% vs. -0.6% previously.

The Euro (EUR) rallied above 1.4300 on dollar weakness more than Euro strength. The pair will need to reclaim the 1.4500 level before downside pressure is relieved. Underpinning the move was a push higher in the in the EUR/JPY above Y131. Overall the EUR/USD traded with a low of 1.4232 and a high of 1.4368 before closing at 1.4330.

The Japanese Yen (JPY) the USD/JPY rally finally ground to a halt but the pull back was shallow as Yen crosses then took up the slack. Key Resistance is seen at Y92. AUD/JPY and EUR/JPY edged higher for most of the day. Overall the USDJPY traded with a low of 91.30 and a high of 91.89 before closing the day around 91.80 in the New York session. Looking ahead, BOJ minutes released.

The Sterling (GBP) failed to capitalize on USD weakness as the market is still cautious but the downside was also limited. The pair spent the whole day inside the 1.5920-1.6000 range. EUR/GBP rallied towards the key 0.9000 level. The BoE minutes added little to what was a quiet day of trading. Overall the GBP/USD traded with a low of 1.5922 and a high of 1.5997 before closing the day at 1.5960 in the New York session.

The Australian Dollar (AUD) rallied off multi month lows at 0.8740 to regain the 0.8800 handle. Commodities rallied across the board and risk appetite remained strong. AUD/NZD jumped back above 1.2500 as New Zealand Q3 GDP came in worse than forecast at 0.2% vs. 0.4% expected. Overall the AUD/USD traded with a low of 0.8733 and a high of 0.8821 before closing the US session at 0.8800.

Oil & Gold (XAU) bounced but failed to break above the $1100 level. Overall trading with a low of USD$1079 and high of USD$1096 before ending the New York session at USD$1094 an ounce. Rallied on bullish Weekly Crude Inventories. Crude Oil was up +$2.27 ending the New York session at $76.67.

TECHNICAL COMMENTARY

Currency	Sup 2	Sup 1	Spot	Res 1	Res 2
EUR/USD	1.4178	1.4218	1.4335	1.4366	1.4373
USD/JPY	90.16	91.00	91.70	91.87	92.32
GBP/USD	1.5903	1.5922	1.5965	1.6100	1.6165
AUD/USD	0.8570	0.8647	0.8800	0.8834	0.8925
XAU/USD	1055.00	1074	1092.00	1119	1141.00
OIL/USD	74.50	75.00	76.80	77.00	78.00

Euro – 1.4335

Initial support at 1.4218 (Dec 22 low) followed by 1.4178 (Sept 1 low). Initial resistance is now located at 1.4366 (Dec 23 high) followed by 1.4373 (Dec 21 high)

Yen – 91.70

Initial support is located at 91.00 (Dec 22 low) followed by 90.16 (Dec 18 low). Initial resistance is now at 91.87 (Dec 22 high) followed by 92.32 (Oct 27 High).

Pound – 1.5965

Initial support at 1.5922 (Dec 22 low) followed by 1.5903 (Oct 14 low). Initial resistance is now at 1.6100 (Dec 22 high) followed by 1.6165 (Dec 21 high).

Australian Dollar – 0.8800

Initial support at 0.8647 (Dec 22 low) followed by the 0.8570 (Oct 2 low). Initial resistance is now at 0.8834 (Dec 22 high) followed by 0.8925 (Dec 21 high).

Gold – 1092

Initial support at 1074 (Dec 22 low) followed by 1055 (Nov 3 low). Initial resistance is now at 1119 (Dec 21 high) followed by 1141 (Dec 17 high) .

Oil – 76.80

Initial support at 75.00 (Intraday support) followed by 74.50 (Intraday support). Initial resistance is now at 77.00 (Key Psychological Level) followed by 78.00 (Intraday resistance).

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Special FX Report – USD direction less dependent on risk appetite

Here are the latest Financial News:

The USD and equities have been trading in tandem over the last few weeks with equities at a new high for 2009 and the USD at its best level since September. This suggests that USD direction is less dependent on risk appetite. There was an interesting report on Bloomberg Monday which suggests that the recent breakdown in the inverse correlation for USD direction and equities may be a sign that the worst is over for the USD. Negative sentiment towards the USD has diminished over the past two months with USD supported by improving optimism about the US economic recovery and speculation that the Fed will move its timeframe forward for raising interest rates to mid-2010. Many analysts have forecast that the Fed would hold rates at ultralow levels through all of 2011 but improving US unemployment and strong retail sales coupled with a new high in the US equity market for 2009 encourages speculation that the US may experience a more rapid and stronger recovery in 2010. A stronger and more rapid US recovery could bring the timeframe for Fed rates hikes forward. A Fed rate hike would reduce the attraction of USD as a funding currency.

The USD is currently trading at a three-month high versus the Euro. Much of the USD rally reflects unwind of USD carry trades sparked by speculation that US yields will not remain at current low levels. The EUR is pressured by speculation that the Fed will raise rates before the ECB. EU inflation remains low and there is concern about the fiscal outlook in the EU as Greece’s debt rating has been downgraded and Ireland, Spain and Portugal also face rising debt risks. Uncertainty about sovereign debt risks in the EU generates concern about the stability of European Monetary Union and the credibility of the EUR. The EUR looks much less attractive as an alternative to USD as a reserve currency in light of sovereign debt worries in the EU. EU debt default risk offsets some of the concern about rising US budget deficit.

The shift in sentiment in favor of USD is confirmed by last Friday’s release of the CFTC commitment of traders for the IMM which showed that noncommercial traders are net short the EUR for the first time since May. In addition, a Bloomberg survey of its users shows that there is a slight positive bias towards the USD. The Bloomberg survey says users turned bullish the dollar for the first time since March as the U.S. economy showed evidence of a sustained recovery. The Bloomberg sentiment index for the USD rose to 51.9 from 42.42 in November and 31.23 in October. A reading above 50 indicates that users expect the dollar to strengthen.

The breakdown of correlation for USD and risk appetite suggests that FX focus is shifting to growth and yield differential. While it is too soon to tell whether the current rally in USD is a temporary correction or significant shift in trend the outlook for the US and global economy will be key to USD direction in 2010. According to a Barclay’s survey the most underestimated risk in the financial markets is the risk of a double dip recession. According to Barclays the USD may benefit from fresh market turbulence if the global market falters. Tuesday a Nobel prize-winning economist from Columbia University Stiglitz said there is a significant chance that the US economy will contract in the second half 2010 as the government and Fed begin to withdraw stimulus. Analysts increasingly expect the Fed to hike rates in the first half of next year rather than the second half.

The timing of Fed withdrawal of stimulus and rate hikes will be a major focus of FX trade in 2010. There is a risk of a double dip recession as fiscal and monetary stimulus measures are withdrawn and global markets could experience significant downturn in second half of 2010. Investors have become used to borrowing in USD and using the funds to invest in commodities, stocks and emerging markets. This reflects the fact that US interest rates remain near zero. Recent USD weakness has primarily been a function of selling USD for carry trades. In theory, as the Fed begins to hike rates and withdraw stimulus the USD should become less attractive for carry trades. Anticipation of the Fed’s exit strategy and rising yields could boost the USD in early 2010 and the current USD rally is a preview of the unwind of the USD carry trade. USD may find additional support from re -linking to risk aversion from safe haven flows if the withdrawal of stimulus leads to a double dip recession. US unemployment outlook will be key for Fed policy expectations. If unemployment remains elevated the Fed may be forced to extend the timeframe for maintaining low yields and USD rebound will be limited.

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Special FX Report – Preview of US GDP and existing home sales

Here are the latest Financial News:

US GDP
US preliminary Q3 GDP was revised down to 2.8% from original report of a 3.5% rise in the advanced estimate. Despite the downward revision, the improvement in US GDP suggests that the worst of the US recessions is over. According to the Bureau of Economic Analysis the increase in Q3 GDP reflects positive contributions from personal consumption, exports, private inventory investment, federal government spending and residential fixed investment. An increase in consumption and improvement in the housing market helped boost Q3 GDP. This improvement reflects significant impact of government stimulus to encourage demand for auto sales by the cash for clunkers plan and tax credit for new homebuyers. There is concern that when government stimulus is withdrawn the pace of the expansion may slow with growth limited by the weakness of the US labor market. In addition, the Fed is beginning to lay the foundation for the end of its ultra low interest rate policy and the first steps to exit from quantitative ease. How the economy reacts when the Fed begins to withdraw stimulus will be key to the outlook for US GDP growth in 2010. Columbia University economist’s Stiglitz says there’s a significant chance that the US economy will contract in the second half of 2010. He urges the US government to prepare a second stimulus package to create jobs. According to Stiglitz, the economy must grow by at least 3% to create enough jobs to meet US population growth.

Final Q3 GDP will be released on December 22nd at 8:30 ET and is expected to be revised down to 2.7%. The additional downward revision will reflect weaker September construction figures and a more rapid drop in inventory drawdown.

US existing home sales
According to the National Association of Realtors (NAR) US existing home sales surged by 10.1% in October. This followed an 8.8% rise in September. The gain in existing home sales reflects the impact of the first-time buyer tax credit, lower mortgage rates and increased affordability of housing as prices of homes have continued to decline. Existing home sales rose to an annual rate of 6.10mln units in October from the downward revised pace of 5.54mln in September. Existing home sales are 23.5% above the 4.94mln unit level of October 2008 with sales activity at its highest level since February 2007. According to the chief economist for the NAR Yun the rise in existing home sales reflects many buyers rushing to beat the deadline for the expiration of the first-time buyer tax credit that was originally due to expire on November 30th. The tax credit has been extended until April 30th, 2010. The total inventory of existing homes fell 3.7% to 3.57mln. This represents a seven month supply existing home sales. Total inventories of unsold homes are 14.9% below a year ago. The supply of existing homes is at the lowest level in over two and half years. According to the NAR’s Yun the housing market is getting closer to the balance between buyers and sellers. The median sales price for existing home was 173,100k down 7.1% from last October.

On December 22nd at 10:00 ET November existing home sales will be released expected at 6.25mln compared to 6.10mln last month. The inventory of existing homes is expected to fall to 6.7% from 7% in October and median sales price of an existing home to have stabilized.

The USD is consolidating near three month high as equities trade at a new high for 2009 and bond yields rise. This suggests that the worst may be over for the USD as the inverse correlation to equities continues to break down. Positive US economic news is supporting the USD as focus shifts to the US recovery and probability of rising US interest rates. The impact of the revised GDP and existing home sales report will depend on whether the data contributes to optimism about the US recovery.

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Daily Forex Report – USD mixed, JPY lower, BOJ won’t tolerate deflation

Here are the latest Financial News:

• USD: Mixed, overseas loses pared by news of Iran/Iraq tension
• JPY: Lower, BOJ won’t tolerate deflation, five-year bond yields hit a four-year low
• EUR: Mixed, German IFO hits 17 month high, trade balance swung to surplus, EUR/CHF declines
• GBP: Higher, mortgage approvals rise, BOE says banking system more stable, PSNCR at record high
• CAD and AUD: AUD & CAD higher, Australia’s business sales rise, Carney says low rate pledge conditional

Overview  
USD drifted lower Friday pressured by a slight uptick in risk appetite as US equity markets edged higher. The EUR was supported by report that the German IFO business sentiment hit its highest level in 17 months and the EU trade deficit swung to surplus in October. GBP edged higher in reaction to report that UK mortgage approvals rose for the third month in a row and the BOE says that the UK banking system is more stable. Commodity currencies traded higher supported by improving risk sentiment and rising crude prices. AUD was supported by report of improvement in Australian business sales. CAD traded higher in reaction to a statement from the BOE’s Carney that the BOC has the flexibility to shorten the time frame for its commitment to keep rates low until mid 2010. Carney appeared to be reacting to Wednesday’s report of higher than expected Canadian CPI. JPY traded lower in reaction to a pledge from the BOJ that the central bank would not tolerate deflation. This pledge encourages speculation that the BOJ may ease monetary policy early next year. USD downside was limited by report of tensions between Iran and Iraq as Iraqi troops were reported to have crossed over the border into Iran and temporarily occupied one of Iraq’s oil fields. The Iraqi deputy minister denied the report. EUR/CHF dropped below 1.50 with CHF supported by rumors of a coup in Pakistan. The drop in EUR/CHF may encourage the SNB to intervene as the SNB has defended the 1.5100 level in the past. The Pakistan government denied the coup rumor.

USD traded at a three-month high Thursday supported by improving outlook for the US economy and speculation that the Fed will withdraw stimulus earlier than expected. US LEI and manufacturing data suggests that the US recovery is picking up pace but jobs growth remains elusive. USD is also supported by concern about sovereign debt outlook in Europe. Thursday Greece’s sovereign debt rating was downgraded.

Today’s US data:
No major data was released in today’s trade.

Upcoming US data:
Next week’s US economic calendar includes the December 22nd release of final Q3 GDP expected at 2.7%. Existing home sales for November will also be released on December 22nd expected at 6300k compared to 6100k last month. On December 23rd personal income and consumption for November will be released along with November PCE deflator, final December University of Michigan sentiment and November new home sales. Personal income and consumption are expected to rise by 0.4%. The PCE deflator is expected unchanged at 1.4%. Michigan sentiment is expected at 74 compared to 73.4 last month. Home sales are expected at 440k compared to 430k in October. On December 24th initial jobless claims for week ending 12/19 will be released expected at 476k compared to 480k last week along with November durable goods expected to rise by 0.3% compared to -0.6% last month.

JPY
JPY traded lower pressured by a pledge from the BOJ that the central bank will not tolerate deflation. The BOJ concluded a two-day policy meeting Friday and elected to hold rate policy unchanged. The BOJ said that it would not tolerate CPI at or below zero. The BOJ’s focus on combating deflation encouraged speculation that the BOJ may be forced to ease monetary policy in early 2010. BOJ ease speculation sent Japan’s five-year bond yields to a four-year low. Earlier in the month the BOJ elected to ease monetary policy and provide additional funding to try to weaken the JPY and combat deflation. JPY remains vulnerable to BOJ ease speculation and concern about Japans debt outlook. Japan says that its 2010/11 budget will be at ¥92trln. MOF officials said that Japanese government needs to cut at least 3trln from the budget to keep bond issuance below ¥44trln. The ratings agency Fitch said that Japan’s debt rating may be downgraded if bond issuance rises above this level.

Next week’s Japanese calendar includes the December 21st release of November trade balance expected at ¥395bln compared to ¥807bln last month along with October all industry activity expected to fall by 0.1% compared to -0.6% last month. On December 25th   November CPI will be released expected at -0.2% compared to -0.4% last month. November household spending, employment housing starts and construction orders will also be released on December 25th. Household spending is expected to fall by 0.5% compared to 0.7 last month, unemployment is expected to rise to 5.2% from 5.1% last month, housing starts are expected to fall by 4.5% compared to 9% last month and construction orders are expected to fall by 28.9% compared to -40.1% last month.

Key technical levels to watch in USD/JPY include support at 89.35 the December 16th low with resistance at 90.86 the November 6th high.

EUR
EUR rebounded from a three month low supported by report of improving German business sentiment and better than expected EU export sales. German December IFO business climate improved to 94.7 compared to 93.9 last month with current conditions improving to 90.5 compared to 89.1 last month. EU October trade balance swung to surplus of 8.8bln as exports declined less than expected. These reports suggest that the EU economy is recovering. The improvement in today’s economic data from the EU is unlikely to change the outlook for ECB policy as the reports are overshadowed by concerns about sovereign debt risks in Europe. EUR traded at a three-month low versus the USD Thursday pressured by S&P downgrade of Greece’s debt rating and speculation that upbeat assessment of US economic outlook by the Fed sets the stage for the beginning of the Fed’s tightening cycle. Uncertainty about sovereign debt risks in the EU generates concern about the stability of European monetary Union and the credibility of the EUR. The EUR looks much less attractive as an alternative to USD as a reserve currency in light of sovereign debt worries in the EU. There was some interesting price activity in EUR/CHF cross which traded below 150 with the CHF supported by safe haven demand sparked by rumors of a coup in Pakistan and report that Iranian troops had crossed over the border into Iraq. The SNB has defended the 1.5100 level in EUR/CHF and today’s price action in the cross spark SNB intervention. The Pakistan coup rumor has been denied. More information is awaited on the Iranian news.

Next week’s EU economic calendar includes the December 22nd release of German January GFK index expected four compared to 3.7 last month. December 23rd EU October industrial orders will be released expected it 1% compared to 1.5% last month.

The technical outlook for the EUR is negative as the EUR breaks trend line support. Expect EUR support at 1.4304 the December 17th low with resistance at 14535 to December 17th high.

GBP
GBP edged higher supported by report that UK mortgage approvals rose for the third month in a row and in reaction to the release of the BOE financial stability report. The rise in mortgage approvals suggests that the UK housing market has stabilized. GBP was pressured in Thursday trade by report of weaker than expected UK retail sales. The drop in UK retail sales offsets the improvement in the UK housing sector and the outlook for the UK recovery remains uncertain. The BOE Financial Stability report said that the UK banking system is more stable but warned that challenges remain. There was limited reaction to report that the UK public sector borrowing for November rose to a new record high. November sector borrowing rose to 14.67bln which was much better than the anticipated rise of 17.5bln. GBP remains vulnerable to uncertainty about BOE policy outlook and UK budget outlook. Last week the BOE left interest rate policy unchanged and said it 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 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. The BOE’s Barker said the BOE must be cautious of how much farther to expand its bond purchase plan. Today’s rise to new record high for the UK net public-sector borrowing will likely continue to weigh on the outlook for GBP.

Next week UK economic calendar includes the December 22nd release of final Q3 GDP expected at-0.3% along with the Q3 current-account expected at -11.80bln.

The technical outlook for GBP is negative as GBP trades below 1.6100. Expect near-term support at 1.6020 with resistance at 1.6340 the December 17th high.

CAD
CAD traded higher supported by a rise in crude oil prices, a slight improvement in risk appetite as US equity markets rally and in reaction to comments from the BOC Governor Carney. The BOC Governor Carney said that the BOC’s pledge to keep rates low until mid to 1010 is conditional and the BOC has flexibility to shorten the time frame for the rate commitment. Wednesday Canada reported higher than expected CPI. BOC pledge to maintain low yields is dependent on whether inflation remains in check. Canada’s November CPI rose by 0.5% m/m and 1% y/y with core inflation at 0.4% m/m and 1.5% y/y. Carney’s comments appear to open the door for an earlier BOC rate hike if inflationary pressures continue to mount. Canada’s wholesale sales for October came in below expectation reported up 0.3%, a 0.6% rise was expected. This report suggests that at the wholesale level Canadian price inflation remains in check. Carney went on to say that he doesn’t expect a double dip global recession. Yield differential is emerging as the key short-term driving factor for Forex trade and the CAD.

Next weeks Canadian economic calendar includes the December 23rd release of October GDP expected at 0.5%.

The technical outlook for CAD is negative as USD/CAD consolidates trades above 1.0700. Look for near-term support at 1.0552 the December 15th low with resistance at 1.0780 the November 9th high and 1.0855 November 3rd high.

AUD
AUD rebounded from Thursday’s sharp drop supported by report of improving business sales. Australia’s November business sales rose by 0.6%. AUD traded as low as 8910 and in overseas trade pressured by rumor of a coup in Pakistan. This rumor sparked selling of higher risk currencies. The AUD rebounded after the Pakistan government denied the rumor. AUD traded sharply lower Thursday pressured by weaker global equity market trade and speculation that US and Australian yield gap is set to narrow as the Fed lays the foundation for future rate hikes and the RBA moves towards steady policy. Although the RBA was the first major industrialized central bank to hike interest rates this year recent statements from the RBA suggest that further rate hikes are less certain. Wednesday the RBA’s deputy governor Battelino said that Australian interest rates are back in the normal range and he sees less need for a rate hike if loan rates keep rising. His comments follow Tuesday’s release of the RBA policy minutes for December. The RBA policy minutes were seen as less hawkish and dampen speculation that the RBA will hike rates aggressively at the start of 2010. The minutes for the December RBA policy meeting said that arguments for a rate hike are finely balanced and that the current rate structure is less accommodative. AUD remains vulnerable to diminished RBA rate hike speculation and speculation that Fed is moving closer to the end of its ease cycle.

Next week’s Australian economic calendar includes the December 21st release of November new car sales expected 4% compared to 3.7% last month.

The technical outlook for the AUD is negative as the AUD drops below above 9100. Expect AUD support at 8755 the October 6th low with resistance at 9010 the December 17th high.

 

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