Dollar and Stocks at Important Technical Levels

The dollar rose modestly against most major currencies on Wednesday. The Federal Reserve said in its Beige Book that the US economy expanded “modestly” on strengthening consumer spending. ADP estimates showed US companies cut 169K jobs in November, the smallest since July 2008. The S&P 500 increased 0.38 to 1,109.24. The euro declined ahead of Thursday’s European Central Bank interest-rate decision meeting. The ECB is expected to maintain its key rate at 1.00%. Sterling rose for a second day as the UK construction PMI showed the construction slump eased. The yen fell versus its counterparts on uncertainty about the Bank of Japan’s stance on intervention as well as Japan’s Prime Minister Yukio Hatoyama’s comment that the yen’s strength can’t be left as it is. The Canadian dollar depreciated as crude oil dropped and commodity prices fell. The Australian dollar was little changed.

The dollar index rose and US stocks traded little changed. The dollar index has been inversely correlated with the US stock market, which is now at important resistance at yearly highs. If the S&P 500 index breaks resistance in the 1120 area, the dollar index will likely decline to the 73 area and possibly test April 2008’s 71- area lows. However, a reversal in the stock market could lead to a strong short covering USD rally.



Financial and Economic News and Comments

US & Canada
US private-sector payrolls declined 169,000 in November, the fewest since July 2008, according to estimates by Automatic Data Processing Inc. and Macroeconomic Advisers. However, the 169,000 decline was deeper than forecast. October data was revised to show a decline of 195,000, down from a previous estimate of 203,000. A December 4 employment report from the Labor Department may show overall job losses approximately 115,000 with the unemployment rate holding at a 26-year high of 10.2%.


According to the Federal Reserve’s Beige Book released today, the Fed said the US economy “improved modestly” from October to mid-November as consumer spending “picked up moderately.” The Beige Book read: “Reports from the twelve Federal Reserve Districts indicate that economic conditions have generally improved modestly since the last report. Eight Districts indicated some pickup in activity or improvement in conditions, while the remaining four--Philadelphia, Cleveland, Richmond, and Atlanta--reported that conditions were little changed and/or mixed.” The Fed stressed that “consumer spending strengthened since the last report, with sales of both general merchandise and autos improving across much of the country.”

Europe
Eurozone producer prices increased a slightly more-than-expected 0.2% m/m in October, reflecting a sharp rise in energy prices, after a 0.4% m/m decline in September, according to PPI data released by Eurostat. October PPI fell 6.7% y/y, following September’s revised 7.6% y/y drop. Excluding construction and energy, PPI declined 0.1% m/m in October and slipped 3.9% y/y.


The pace of contraction in the UK construction sector slowed in November for the first time since August. The CIPS/Markit UK construction PMI was at 47.0 in November, up from 46.2 in October and 46.7 in September, according to data released by Markit Economics and the Chartered Institute of Purchasing and Supply.

Asia-Pacific
Japan’s monetary base continued to increase in November, advancing 3.8% y/y, after a 4.4% y/y October rise, the Bank of Japan said.

The Australian Industry Group/Commonwealth Bank performance of services index declined to 52.5 in November from 54.8 in October, indicating Australia’s services sector expanded for a second consecutive month but at a slightly slower pace, a report by the AiG and Commonwealth Bank of Australia showed.

FX Strategy Update



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Source: Hans Nillson

02.12.2009