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U.S. Dollar Mostly Weaker Ahead of Retail Sales Report

James Hyerczyk from ForexHound.com at 12/11/09


The U.S. Dollar is trading lower against most major currencies ahead of this morning’s retail sales report.  Economists are calling for an increase of 0.6% in retail sales for the month of November. The University of Michigan Consumer Confidence report is expected to rise to 68.8 from 67.4.


Market participants want to see stability in the labor market and an increase in consumer spending.  In my opinion, a bullish retail number today is likely to support the Dollar because it will increase speculation that the Fed will hike interest rates sooner than expected.


Some traders feel that a bullish retail number will be bearish for the Dollar because it will add to increased appetite for risky assets.  If this is the case then appetite for risky assets will be the primary catalyst behind a weaker Dollar today. 


This clash between those who believe the Fed is closer to raising rates and investors who feel it is still a long way off, may trigger a stalemate in the Forex markets until the Fed clarifies the situation at its next meeting on December 16th.


The EUR USD is posting a modest gain overnight. After experience stress earlier in the week because of downgrades of Greece, Spain and Portugal, traders have reassessed debt conditions and decided that the price drop may have been excessive.


The GBP USD is trading slightly better.  Today the U.K. is expected to report that the Producer Price Index rose by 2.9%.  Yesterday the Bank of England decided to leave interest rates unchanged while leaving its quantitative easing program intact.  Like the Euro, losses earlier in the week may have been overdone, leading to oversold technical conditions.


Increased demand for higher yielding assets is pressuring the lower yielding Japanese Yen.  This week the Yen was hit with slew of bearish events leading to the recovery in the USD JPY the past two days. Last night it was reported that Japanese Consumer Confidence dropped more than expected for the first time this year.  Earlier in the week, the Third Quarter GDP number disappointed investors along with the approval of a new 7.2 trillion yen stimulus package.


The USD CHF is trading lower.  Yesterday’s closing price reversal top is a bearish indicator but the pair has to confirm the top first.  Look for an acceleration to the downside if 1.0237 is broken.  Yesterday the Swiss National Bank agreed to leave interest rates unchanged while announcing plans to end its bond purchasing program.  The SNB feels that the economy is still too fragile to begin hiking interest rates.  They also added that they will not be shy about intervening if the Swiss Franc appreciates too much.


Overnight, the USD CAD is feeling downside pressure in a continuation of the weakness which began on Wednesday. Yesterday’s better than expected Canadian trade balance report was the catalyst behind the strong surge in the Canadian Dollar.  Higher precious metal prices helped the trade balance achieve a surplus.


The Aussie Dollar is trading sideways to better following yesterday’s strong rally.  Thursday’s move was driven by better than expected employment numbers and a sharp rise in the New Zealand Dollar.  Increased appetite for risk from Asia also contributed to the rise.  Since today’s U.S. Retail Sales Report will be the driving force in the stock market, this number is also likely to influence the AUD USD.  The news, that China’s industrial production increased by 19.2% in November, while exports fell at a slower pace than estimated, provided some support to this market overnight. 


The NZD USD is trading inside of yesterday’s range in a lackluster trade.  The strong surge the past two days has put this market in a short-term overbought position.  The first leg up from bottom is usually short-covering.  This means that another factor will have to be the catalyst to drive this market higher.  This catalyst will be increased appetite for higher yielding currencies.  If this demand doesn’t materialize, then look for a pullback to at least .7180.



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