Daily Forex Report - USD on the defensive, stocks and commodities surge

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• USD: Lower, pressured by improving risk appetite and a surge in commodity prices, ISM beats expectation
• JPY: Higher, tracking broad USD weakness versus the majors
• EUR: Higher, manufacturing PMI rose to 21 month high, investor confidence at best level since June 2008
• GBP: Higher, UK manufacturing PMI and mortgage approvals beat expectations, debt worries limit gains
• CHF: Higher, EUR/CHF near multi-month low, Swiss manufacturing PMI remains above 50
• CAD and AUD: AUD & CAD higher, China may use FX reserves to buy commodities, PMI at 20 month high

Overview  
USD traded lower to start the year pressured by firmer equity market trade and a surge in commodity prices. Strong PMI data from China and Europe contributed to equity market gains and demand for commodities. China’s manufacturing PMI rose to its highest level since April 2004. The improvement in China’s PMI data suggests that China’s economy may grow by 10% in early 2010. There are reports that China may use FX reserves to buy oil and commodities. Crude traded above $80 a barrel and metals prices surged. The surge in commodity prices sparked demand for growth led currencies like the CAD and AUD. GBP underperformed pressured by selling in cross trade as UK Chancellor Darling warns that cutting the deficit too quickly could hurt the UK economy. In addition, Pimco says it will cut holdings of UK bonds because of increased borrowing. USD started the year higher in Asian trade supported by speculation that improving US economic data will lead to an earlier Fed rate hike and in reaction to a statement from Fed Chairman Bernanke that all options are open for interest rates. There was limited reaction to a UBS report which says the USD may firm in 2010 as US investors cut foreign holdings with US investors are less willing to increase their foreign exposures. US economic data was mixed with construction spending declining more than expected and manufacturing ISM rising more than expected. USD remained on the defensive post release of the ISM report.

The trade will be looking closely at this week’s US economic data for possible clues to Fed policy outlook. This week’s key US economic report is Friday’s release of US unemployment. The trade will be looking at the unemployment report for confirmation that the US labor market is improving. The latest estimate from Market watch is that US nonfarm payrolls rose by 10k in December ending 23 months of decline. (Consensus is nfp declined by 23k.) If the nonfarm payrolls turn positive the report will likely fuel speculation that the Fed  will raise rates sooner than forecast and demand for USD. Fed policy outlook will be a key market driver in 2010.

Today’s US data:
November construction spending declined by 0.6%, a 0.4% decline was expected. December ISM rose to 55.9, a reading of 54 was expected.

Upcoming US data:
On January 5th November factory orders, pending home sales and December auto sales will be released. Factory orders are expected at 0.5% compared to 6% last month. Pending home sales Index is expected at 111.8 compared to 114.1 last month. On January 6th December ADP employment and ISM non- manufacturing Index will be released. The ADP employment report is expected at -70k compared to -169k last month. The nonmanufacturing ISM index is expected at 50 compared to 48.7 last month. On January 7th initial jobless claims for the week ending 01/02 will be released expected at 545k compared to 432k last week. On January 8th December nonfarm payrolls and unemployment will be released. Nonfarm payrolls are expected to come in at -23k compared to -11k last month. The unemployment rate is expected to rise 0.1% to 10.1%. November consumer credit will also be released on January 8th expected at -4.40bln compared to -3.51bln last month.

JPY
JPY rebounded from a four-month low versus the USD supported by spillover from broad USD weakness against the majors. JPY was initially pressured by a statement from Fed Chairman Bernanke that the Fed will keep rate hike options open. Fed rate hike speculation was over shadowed by improving risk appetite as equity markets rally and commodity prices surge. A report that China’s manufacturing PMI rose at its fastest pace in several years fuels demand for commodity markets and equities JPY remains vulnerable to concern about Japan’s sovereign debt rating and widening of US and bond yield gap. S&P warns that Japan’s sovereign debt rating may be cut if steps aren’t taken to cut Japan’s rising debt. Last week Japan announced a record ¥92.3trln budget for fiscal 2010/ 11. For the first time since World War II Japan’s bond issuance will exceed tax revenue. US/Japan ten year bond yield spread is at its widest level in two years. Speculation that the BOJ may expand quantitative ease in early 2010 is a major risk for the JPY. The BOJ expanded its funding operations and pledged in mid-December to combat deflationary pressures in Japan.

On January 8th November preliminary leading indicators will be released expected at 2.2% compared to 2.5% last month.

Key technical levels to watch in USD/JPY include support at 91.92 the December 30th low with resistance at 94.10 the August 28th high.

EUR
EUR traded higher supported by report of improving EU manufacturing PMI and Sentix index and rising risk appetite. EU December manufacturing PMI rose to a 21 month high at 51.6 compared to 51.2 last month. The January Sentix investor confidence index improved to -3.7 from -5.5 last month. The Sentix index is at its highest level since June of 2008. Despite today’s report of improving manufacturing activity and investor confidence the ECB is expected to maintain steady policy bias. Firmer equity market trade also supported the EUR. US economic data and Fed policy outlook will be the key drivers for EUR trade this week. EUR remains vulnerable to concern about EU sovereign debt risk and Fed rate hike speculation.

On January 5th German December unemployment and CPI will be released. The German Unemployment rate is expected unchanged at 8.1%. CPI is expected at 1% compared 0.5% last month. On January 6th EU services PMI and December will be released expected 53.7 compared to 53 last month along with EU industrial new orders expected at 1% compared to 1.5% last month and November PPI expected unchanged at 0.2%. On January 7th EU December economic sentiment will be released along with November retail sales. Economic sentiment index is expected at 90 compared to 88.8 last month. Retail sales are expected to rise by 0.1% compared 0.0% last month.

The technical outlook for the EUR is mixed as the EUR traded above 1.4400. Expect EUR support at 1.4306 the December 30h low with resistance at 1.4503 the December 15th high.

CHF
CHF traded higher despite report of a drop in Swiss manufacturing PMI. Swiss December PMI declined to 54.6 from 56.9 last month. The fact that the Swiss PMI remains above 50 suggests that the Swiss manufacturing economy continues to expand. CHF gains are attributed to safe haven demand fueled by escalating geopolitical tensions as the US closes its embassy in Yemen. CHF is also supported by gains in cross trade to the EUR. EUR/CHF traded at its highest level since March 12th, 2009 and the cross hit a low of 1.4809 in overseas trade. Swiss officials have been noticeably quiet about recent CHF appreciation versus in EUR but today’s movement in the cross towards 1.4800 could inspire SNB intervention. This week’s Swiss economic calendar includes January 7th release of December CPI expected at 0.1% compared to 0.2% last month. Expect USD/CHF support at 1.0235 the December 11th with resistance at 1.0509 to December 19th high.

GBP
GBP traded mixed giving back initial gains that were inspired by report of strong UK manufacturing PMI and jump in UK mortgage approvals. UK manufacturing PMI for December rose to 54.1 from 51.8 last month. The manufacturing PMI is at its highest level since November 2007. Mortgage approvals rose to 60,518 from 57,718 last month. UK mortgage approvals are at their highest level since March 2008. UK M4 rose by 0.9%% in November. GBP continued to underperform with gains limited by concern about UK budget outlook and uncertainty about BOE monetary policy. UK Chancellor Darling warned that cutting the deficit too quickly could hurt UK economy. His comments may generate concern about UK debt rating as debt agencies have urged the UK to take action to reduce the deficit. GBP gains were also limited by report that Pimco plans to reduce holdings of UK bonds because of increased UK borrowing. BOE will hold a policy meeting Thursday and are expected to hold monetary policy and the current level of asset purchase unchanged. The improvement in UK manufacturing PMI mortgage data suggests that the UK economy is emerging from recession but the data may not be enough to encourage the BOE to change monetary policy at this time. The BOE is expected to wait to see inflation figures in February for deciding whether a pause in its asset purchase plan is justified. GBP remains vulnerable to concern about UK debt outlook and election uncertainty. The UK will hold a general election sometime after March of 2010 and before June 3rd. Latest polls show that the Conservatives could capture a 22 seat majority in parliament.

On January 6th December services PMI will be released expected unchanged at 56.6.

The technical outlook for GBP is mixed to positive as GBP rallies above 1.6100. Expect near-term support at 1.6005 with resistance at 1.6340 the December 17th high.

CAD
CAD traded sharply higher supported by firmer equity market trade and stronger commodity prices. A report that China may use some of its reserves to buy crude oil and commodities sparked significant demand for metals and crude in Monday’s trade. Gold traded over $25 higher, crude traded above $80 a barrel and copper prices traded a 16 month high. In addition, strong manufacturing PMI’s from Europe and China sparked demand for equities and growth related currencies like the CAD. There were no major Canadian economic reports released in today’s trade. CAD has outperformed with support from improving growth outlook in North America and less dovish BOC policy bias.  At the BOC policy meeting in December the BOC reaffirmed its pledge to leave interest rates at record lows through June 2010 as long as inflation remains in check. Last week BOC Governor Carney said that the BOC’s pledge to keep rates low until mid to 2010 is conditional and the BOC has flexibility to shorten the time frame for the rate commitment.

On January 5th November I PPI and RMPI will be released. These reports will give some indication of whether Canada is experiencing inflationary pressures.

The technical outlook for CAD is positive as USD/CAD trades below 1.0400. Look for near-term support at 1.0207 the October 15th low with resistance at 1.0580 the December 23rd high.

AUD
AUD traded sharply higher despite report that Australia’s manufacturing PMI declined. Australia’s December manufacturing PMI fell by 2.7 points to 48.5. AUD was supported by improving the risk appetite as equity markets surge in reaction to strong PMI data from China and a report that China may use some of its FX reserves to buy commodities. China’s manufacturing PMI was at a 20 month high. China is a major export destination for Australia. AUD had been experiencing significant selling pressure sparked by diminished RBA rate hike speculation and concern that recent RBA rate hikes have contributed to weaker than expected domestic growth in Australia. At the start of December investors were looking for the RBA to hike rates by 50 basis points in February. The trade now is looking for the RBA to pause in its tightening cycle because the sustainability of the economic recovery in Australia is less certain. AUD is supported by improving risk sentiment and positive outlook for commodity prices.

On January 6th November building approvals would be released expected at 1.5% compared to -0.6% last month. On January 7th November retail sales and November trade balance will be released. Retail sales are expected to rise by 0.6% compared to 0.3% last month. The trade balance is expected at -2.5 billion compared to -2.3 billion last month.

The technical outlook for the AUD is positive as the AUD trades above 9000. Expect AUD support at 8929 the December 31st low with resistance at 9295 the December 4th high.

US Morning Notes - USD lower, manufacturing PMI’s rise in Europe & China

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FX Highlights

• The USD is trading lower as equity markets rally and commodity prices rise, crude oil supported by report that Russia has halted oil flows to Belarus, copper prices trade at a 16 month high, EU manufacturing PMI at 21 month high, UK mortgage approvals at the highest level since March 2008, this week’s main focus is Friday’s release of US jobs report, the trade will be monitoring US economic data for clues to Fed policy outlook
• Focus turns to today’s release of US construction spending and ISM manufacturing index
• JPY consolidates at a four month low versus the USD as US bond yields rise and risk appetite improves with firmer equity market trade and strong rally in commodity prices
• China’s manufacturing PMI hits a 20 month high in December at 56.1
• Australia manufacturing PMI falls 2.7 points to 48.5, AUD higher
• EU December manufacturing PMI rose to 51.6 from 51.2 last month, January Sentix index at -3.7 compared to -5.5 last month, EUR higher
• UK December manufacturing PMI rose to 54.1 from 51.8 last month, mortgage approvals for November rose to 60,518 compared to 57,718 last month, UK Chancellor Darling warns that cutting the deficit too quickly could hurt the UK economy, GBP mixed
• Swiss December PMI falls to 54.6 from 56.9 last month, CHF higher
• Chicago PMI revised to 58.7 from 60
• Pimco to cut holdings of US and UK bonds as borrowing increases
• US equity markets set to open higher, European equities 1 % higher, Nikkei closed 108 points higher

Upcoming Events

• US - Monday, November construction spending will be released expected at -0.4% compared to 0.00% last month along with December ISM manufacturing index expected at 54 compared to 53.6 last month
• CAN - Monday, no major Canadian economic data is due for release today

Weekly Outlook - US Jobs Data to test USD strength into the New Year

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US Jobs Data to test USD strength into the New Year

Last week’s currency trading review

The Dollar was able to gain against its two biggest partners in the Euro and the Yen with US economic data continuing to show improvement. December Chicago PMI jumped to 60 vs. 56.1 previously. Also promising was the Weekly Jobless claims at 432k vs. 460k forecast. The link between a strong USD and strong US economic data is growing of late overtaking the stock-market as the main driver of direction. The Euro although the market was quite contained in holiday trade the Euro failed to break above 1.4440 on a few occasions and the pair slipped back to the lower end on the range by the weeks end. EUR/JPY was able to show some small gains but EUR/GBP and EUR/GBP were quite weak. Little Economic data was released but German December CPI did beat forecasts at 0.7% vs. -0.1% previously. The EUR/USD fell -0.38% closing at 1.4323, after opening the week at 1.4378.

The Japanese Yen losses accelerated across the board with the NZD/JPY up over +4% and AUD/JPY +3%. Risk appetite is now being expressed via the Yen crosses and the USD/JPY is a on a major move higher up from Y85 lows in November. November Industrial Production gained 2.6% vs. 0.5% previously m/m. The USD/JPY gained +1.59% closing at 93.01 after opening the week at 91.53. The GBP rebounded well against all except the risk currencies with sentiment improving and as technical buy signals emerged. The Pound has been under performing for most of the year and prone to these unexpected bouts of strength. December Nationwide House Prices showed a 0.4% rise as expected. GBP/USD gained +1.24% closing at 1.6124 after opening at 1.5963. The AUD rebounded well as the stable and quiet market conditions favored the high yielding pair. The AUD/JPY carry trade showed glimpses of the past and provided the support for the Aussie to gain against all the major currencies except the NZD. The AUD/USD gained +1.64% closing at 0.8973 after opening at 0.8826.

The forex trading week preview

In the States; On Monday, December ISM Manufacturing is forecast at 54 vs. 53.6 previously. On Tuesday, November Pending Home Sales forecast at -3.1% vs. -3.7% previously. On Wednesday, December ADP Employment Change Forecast at -75k vs. -169k previously. Also released, December FOMC minutes. On Thursday, Weekly Jobless claims are forecast at 449k vs. 432k previously. On Friday, December NonFarm Payrolls forecast at -3k vs. -11k previously. December Unemployment Rate forecast unchanged at 10.0%. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone; On Tuesday, December German Unemployment Change forecast at 5k vs. -7k previously. December German Unemployment Rate forecast at 8.1%. Also on Tuesday, December CPI forecast at 0.9% y/y vs. 0.6% y/y previously. On Friday, Q3 GDP forecast at 0.4%. Finally on Friday, November German Industrial Production is forecast at 1.0% vs. -1.8% previously. In the UK; On Monday, December PMI forecast at 52 vs. 51.8 previously. On Wednesday, December PMI services forecast at 56.9 vs. 56.6 previously. On Thursday, BOE rate announcement forecast to remain at 0.5% with the Asset Purchase Program remaining at 200B. We will provide our previews and reviews of these data releases in the daily summary.

In Japan; no major data release this week. In Australia; On Wednesday, November Building Approvals previously at -0.6%. On Thursday, November Trade Balance previously at -2379m. Also released, November Retail Sales previously at 0.3%. We will provide our previews and reviews of these data releases in the daily summary.

TECHNICAL COMMENTARY

Euro - 1.4330

Initial support at 1.4273 (Dec 30 low) followed by 1.4234 (Dec 24 low). Initial resistance is now located at 1.4458 (Dec 29 high) followed by 1.4481 (Oct 2 former low)

Yen - 92.80

Initial support is located at 91.41 (Dec 28 low) followed by 91.00 (Dec 22 low). Initial resistance is now at 92.3.13 (Dec 31 high) followed by 93.30 (Sept 7 High).

Pound - 1.6150

Initial support at 1.5833 (Dec 30 low) followed by 1.5708 (Oct 13 low). Initial resistance is now at 1.6236 (Dec 31 high) followed by 1.6248 (Dec 18 high).

Australian Dollar - 0.8990

Initial support at 0.8902 (Dec 30 low) followed by the 0.8857 (Dec 25 low). Initial resistance is now at 0.9011 (Dec 17 high) followed by 0.9070 (Dec 16 high).

Gold - 1097

Initial support at 1086 (Dec 30 low) followed by 1086 (Dec 22 low). Initial resistance is now at 1108 (Dec 29 high) followed by 1114 (Dec 28 high).

Oil - 79.70

Initial support at 79.10 (Intraday support) followed by 78.00 (Intraday support). Initial resistance is now at 80.00 (Key Psychological Level) followed by 82.00 (November High).

Daily Forex Outlook - Pound Soars into the New Year

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CURRENCY TRADING SUMMARY - 4th January (00:30GMT)

U.S. Dollar Trading (USD) was volatile gaining against most pairs in the US session as Weekly Jobless claims continued to improve, leading to speculation that December Non Farm Payrolls could be positive. US stocks finished lower on profit taking. DJIA -120 points closing at 10428, S&P -11 points closing at 1115 and NASDAQ -22 points closing at 2269. Looking ahead, ISM Manufacturing PMI is forecast at 54.1 vs. 53.6 previously.

The Euro (EUR) is looking weak technically after failing for another time at the 1.4440 level. The slip lower was not helped by US stocks but the Euro did perform relatively well against the Yen. EUR/GBP slipped below 0.8900 as the Pound continued to outperform. Overall the EUR/USD traded with a low of 1.4308 and a high of 1.4441 before closing at 1.4318.

The Japanese Yen (JPY) ended the year on a very weak not as the major helped all the crosses higher. Further Weakness in the New Year is likely as Technical and sentiment both line up against the pair. AUD/JPY are GBP/JPY are particularly strong. Overall the USDJPY traded with a low of 91.93 and a high of 93.14 before closing the day around 93.08 in the New York session.

The Sterling (GBP) continued to track higher against all currencies with GBP/JPY and EUR/GBP providing support for Cable to trade above 1.6200. December Nationwide HPI at 0.4% was as expected. Overall the GBP/USD traded with a low of 1.6051 and a high of 1.6235 before closing the day at 1.6080 in the New York session. Looking ahead, December Manufacturing PMI forecast at 52.1 vs. 51.8 previously.

The Australian Dollar (AUD) trade above the key 0.9000 briefly but failed to kick on as the USD found support in the US session. AUD/JPY and EUR/AUD are both underpinning the Aussie along with the large interest rate differential. Overall the AUD/USD traded with a low of 0.8931 and a high of 0.9008 before closing the US session at 0.8991.

Oil & Gold (XAU) failed to close above $1100 but was well supported in a tight range. Overall trading with a low of USD$1095 and high of USD$1107 before ending the New York session at USD$1097 an ounce. Held a tight range well supported in the lower $79 region but failing inspiration to test the key $80 level. Crude Oil was up $0.12 ending the New York session at $79.62.

TECHNICAL COMMENTARY

Euro - 1.4330

Initial support at 1.4273 (Dec 30 low) followed by 1.4234 (Dec 24 low). Initial resistance is now located at 1.4458 (Dec 29 high) followed by 1.4481 (Oct 2 former low)

Yen - 92.80

Initial support is located at 91.41 (Dec 28 low) followed by 91.00 (Dec 22 low). Initial resistance is now at 92.3.13 (Dec 31 high) followed by 93.30 (Sept 7 High).

Pound - 1.6150

Initial support at 1.5833 (Dec 30 low) followed by 1.5708 (Oct 13 low). Initial resistance is now at 1.6236 (Dec 31 high) followed by 1.6248 (Dec 18 high).

Australian Dollar - 0.8990

Initial support at 0.8902 (Dec 30 low) followed by the 0.8857 (Dec 25 low). Initial resistance is now at 0.9011 (Dec 17 high) followed by 0.9070 (Dec 16 high).

Gold - 1097

Initial support at 1086 (Dec 30 low) followed by 1086 (Dec 22 low). Initial resistance is now at 1108 (Dec 29 high) followed by 1114 (Dec 28 high).

Oil - 79.70

Initial support at 79.10 (Intraday support) followed by 78.00 (Intraday support). Initial resistance is now at 80.00 (Key Psychological Level) followed by 82.00 (November High).

Daily Forex Report - USD rebounds, jobless claims at lowest level since 2008

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• USD: Mixed, jobless claims fall more than expected, continuing claims dropped by 57k, bond yields jump
• JPY: Lower, fiscal worries and widening yield gap, unexpected decline in US jobless claims
• EUR: Lower, IMF says EUR reserve holdings rose in Q3, gains limited by US jobs data, rising bond yields
• GBP: Higher, UK house prices rise at fastest pace in two years, a sign recession is ending
• CAD and AUD: AUD & CAD higher, Australia’s private sector credit growth slows, copper at 16 month high

Overview  
USD traded mixed to lower on the last trading day of the year pressured by an IMF report which says that the US share of world reserves dropped to its lowest level in a decade during the third quarter of 2009. USD was also pressured by liquidation sales as investors close out long USD positions before year-end. GBP traded higher in reaction to report that UK house prices rose the most in two years and UK lenders expect credit conditions to continue to improve in Q1 2010. Commodity currencies traded higher supported by firmer equities and higher price of gold. Copper traded at a 16 month high. AUD traded higher despite report that private credit grew at its slowest pace in almost 2 decades. The Australian private sector credit report may dampen RBA rate hike speculation. US jobless claims fell sharply last week. The jobless claim drop fuels optimism about US growth in Q1 2010. Focus turns to next week’s release of US December unemployment. The trade will be looking at the unemployment report for confirmation that the US labor market is improving. Market consensus is that the unemployment rate will come in at 10.1% with nonfarm payrolls at -23k. Some economists however say that the US nonfarm payrolls may have turned positive in December. If the nonfarm payrolls turn positive the report will likely fuel speculation that the Fed raises rates sooner than forecast. Fed policy outlook will be a key market driver in 2010.

Today’s US data:
Jobless claims for week ending 12/26 declined by 22k to 432k, a reading of 457k was expected.

Upcoming US data:
On January 4th November construction spending and December ISM Index will be released. Construction spending is expected to fall by 0.4% and the ISM index is expected to improve to 54 and 53.6 last month. On January 5th November factory orders, pending home sales and December auto sales will be released. Factory orders are expected at 0.5% compared to 6% last month. Pending home sales index is expected at 111.8 compared to 114.1 last month. On January 6th December ADP employment and ISM Manufacturing Index will be released. The ADP employment report is expected at -70k compared to -169k last month. The nonmanufacturing ISM index is expected at 50 compared to 48.7 last month. On January 7th initial jobless claims for the week ending 01/02 will be released expected at 545k compared to 432k last week. On January 8th December nonfarm payrolls and unemployment will be released. Nonfarm payrolls are expected to come in at -23k compared to -11k last month. The unemployment rate is expected to rise 0.1% to 10.1%. November consumer credit will also be released on January 8th expected at -4.40bln compared to -3.51bln last month.

JPY
Markets were closed in Japan for holiday. JPY traded lower in thin trade Thursday. JPY is consolidating at three month low versus the USD.JPY has been pressured by worries about Japan’s sovereign debt rating and widening of US/Japan bond yield gap. S&P warns that Japan’s sovereign debt rating may be cut if steps aren’t taken to cut Japan’s rising debt. Monday, Japan announced a record ¥92.3trln budget for fiscal 2010/ 11. For the first time since World War II Japan’s bond issuance will exceed tax revenue. US/Japan ten year bond yield spread is at its widest level in two years. Speculation that the BOJ may expand quantitative ease in early 2010 is a major risk for the JPY. The BOJ expanded its funding operations and pledged in mid-December two combat deflationary pressures in Japan. JPY gains were limited by selling in cross trade. GBP/JPY traded 1% higher with GBP supported by report that UK house prices rose the best level in two years. JPY traded lower after the release of better than expected US jobless claims report tracking higher US bond yields.

On January 8th November preliminary leading indicators will be released expected at 2.2% compared to 2.5% last month.

Key technical levels to watch in USD/JPY include support at 91.92 the December 30th low with resistance at 93.30 the September 7th high.

EUR
EUR opened higher supported by improving risk appetite as global equity markets rally and in reaction to a statement from the IMF that  holdings of EUR reserves rose in the third quarter and USD reserve holdings sank to the lowest level in ten years. French Finance Minister Lagarde said she expects French Q4 growth to be good as or better than Q3. According to a Bloomberg report EUR was also supported by short covering ahead of year end as some speculators see this month’s 5% drop in the EUR as overdone. EUR gains were limited by report that US weekly jobless claims declined to the lowest level since July 19, 2008. The decline in jobless claims fuels speculation that the US labor market is improving. Improvement in the US labor market may intensify speculation that US interest rates are headed higher in 2010. EUR remains vulnerable to concern about EU sovereign debt risk and Fed rate hike speculation.

On January 4th EU January Sentix Index will be released expected -5 compared -5.5 last month along with EU December manufacturing PMI. The manufacturing PMI is expected at 51.6 compared to 51.2 last month. On January 5th German December unemployment and CPI will be released. The German Unemployment rate is expected unchanged at 8.1%. CPI is expected at 1% compared 0.5% last month. On January 6th EU services PMI and December will be released expected 53.7 compared to 53 last month along with EU industrial new orders expected at 1% compared to 1.5% last month and November PPI expected unchanged at 0.2%. On January 7th EU December economic sentiment will be released along with November retail sales. Economic sentiment index is expected at 90 compared to 88.8 last month. Retail sales are expected to rise by 0.1% compared 0.0% last month.

The technical outlook for the EUR is mixed as the EUR traded above 1.4400. Expect EUR support at 1.4306 the December 30h low with resistance at 1.4503 the December 15th high.

GBP
GBP traded higher supported by improving risk sentiment and report that UK house prices rose at their fastest pace in two years. UK December nationwide house prices rose by 0.4% and 5.9% for the year. The rise in UK house prices fuels speculation that UK recovery is gaining momentum. The house price report may reduce pressure on the BOE to expand quantitative ease in early 2010.GBP is also supported by a report that UK lenders expect credit conditions to continue to improve in Q1 2010. GBP experienced remarkable price action rallying more than four cents from Wednesday’s lows. Much of the rally in the GBP appears to be unwind of short positions with price movements exaggerated by thin year end conditions. GBP remains vulnerable to concern about UK debt outlook and election uncertainty The UK will hold a general election sometime after March of 2010 and before June 3rd. There is growing concern that the UK election may result in a hung parliament with no political party gaining in the UK Parliament may make it difficult for the UK to take action to reduce its debt. Tuesday a group of economists criticized the UK government’s irresponsible failure to come up with a convincing plan to reduce the UK budget deficit. If the UK government fails to take credible action to reduce the budget deficit the UK is at risk of losing its AAA sovereign debt rating. UK budget outlook will be a key campaign issue and election uncertainty may encourage selling pressure to the GBP.

On January 4th November consumer credit will be released expected at -0.4bln compared to -0.579bln last month. November mortgage applications and lending will also be released on January 4th. Mortgage applications are expected at 58k and lending expected at 0.9bln. December manufacturing PMI is also due for release on January 4th expected at 52 compared to 51.8 last month. On January 6th December services PMI will be released expected unchanged at 56.6.

The technical outlook for GBP is mixed to positive as GBP rallies above 1.6100. Expect near-term support at 1.6005 with resistance at 1.6340 the December 17th high.

CAD
CAD traded higher supported by firmer equity market trade, stronger metals prices and improving US labor data. Equity markets traded higher in Asia, Europe and the US. The equity market rally fuels demand for growth based currencies like the CAD. Metals markets are strong with copper prices trading at their highest level in 16 months and $10 higher. CAD has been benefiting from speculation that improvement in the North American economy is gaining momentum. Today’s unexpected drop in US jobless claims generates optimism about economic recovery in North America. There were no major Canadian economic reports released in today’s trade. CAD has outperformed with support from improving growth outlook in North America and less dovish BOC policy bias.  At the BOC policy meeting in December the BOC reaffirmed its pledge to leave interest rates at record lows through June 2010 as long as inflation remains in check. Last week BOC Governor Carney said that the BOC’s pledge to keep rates low until mid to 2010 is conditional and the BOC has flexibility to shorten the time frame for the rate commitment. Carney’s comments appear to open the door for an earlier BOC rate hike if inflationary pressures continue to mount. CAD gains were limited by report that Canada’s PM Harper closed Parliament for two months. Political turmoil in Canada may limit demand for the CAD.

On January 5th November I PPI and RMPI will be released. These reports will give some indication of whether Canada is experiencing inflationary pressures.

The technical outlook for CAD is mixed as USD/CAD trades above 1.0500. Look for near-term support at 1.0425 the December 30th low with resistance at 1.0580 the December 23rd high and 1.0640.

AUD
AUD traded higher despite report that Australia’s private sector credit rose by just 0.1% in November. Australia’s private sector credit growth is at its slowest pace in 17 years. Weaker private sector credit growth may slow the Australian recovery and dampen RBA rate hike speculation. Today’s AUD rally is attributed to firmer metals prices as copper trades at 16 month high and improving risk appetite as globalized markets rally with the Hang Seng index closing 1.5% higher. AUD had been experiencing significant selling pressure sparked by diminished RBA rate hike speculation and concern that recent RBA rate hikes have contributed to weaker than expected domestic growth in Australia. At the start of December investors were looking for the RBA to hike rates by 50 bps in February. The trade now is looking for the RBA to pause in its tightening cycle because the sustainability of the economic recovery in Australia is less certain. Today’s Australian private sector credit report will further reduce the odds of a February RBA rate hike.

On January 6th November building approvals would be released expected at 1.5% compared to -0.6% last month. On January 7th November retail sales and November trade balance will be released. Retail sales are expected to rise by 0.6% compared to 0.3% last month. The trade balance is expected at -2.5bln compared to -2.3bln last month.

The technical outlook for the AUD is positive as the AUD trades above 9000. Expect AUD support at 8902 the December 30th low with resistance at 9070 the December 16th high.

US Morning Notes - USD lower, USD share of global reserves fell in Q3

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FX Highlights

• The USD is trading lower on the final trading day of the year pressured by firmer equity market trade in reaction to an IMF report which said USD share of world reserves dropped in Q3 to the lowest level in a decade, the Hang Seng index closed 1.5% higher and equity markets are firmer in Europe and the US, GBP supported by report of firmer UK house prices and improving lending conditions, commodity currencies supported by equity market gains and a rally in the price of gold, AUD traded higher despite report of slower private sector credit growth
• Focus turns to today’s release of US jobless claims, the trade expects today’s jobless claims report to show continued improvement in the US labor market and confirm optimism about the US recovery
• Australia’s November private sector credit rose by 0.1%, AUD higher
• UK December Nationwide house prices rise by 0.4%, UK lenders expect credit conditions to improve in Q1, GBP higher
• IMF says USD share of world reserves declined in Q3
• ECB’s Bini Smaghi says that unemployment may continue rise in the months ahead, French Finance Minister Lagarde expects French Q4 GDP growth to be positive, EUR higher
• US equity markets set to open higher, European equities .25% higher, Nikkei closed for holiday

Upcoming Events

• US - Thursday, initial jobless claims for week ending 12/26 will be released expected to rise by 5k to 457k
• CAN - Thursday, no major Canadian economic data is due for release today

Daily Forex Outlook - Pound Soars into the New Year

Posted by admin as Forex 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

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).

Special FX Report - Some thoughts on the US economy in 2010

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The general consensus of economists is that the US will experience 2 to 2.5% growth in 2010 with equity market gains limited to single digits and the USD likely to post a modest recovery. Aggressive fiscal and monetary stimulus from the Fed and US government helped to stabilize the financial markets and end the US recession. The USD posted 2.2% growth in Q3. The rise in US Q3 growth reflects an increase in consumer spending sparked by government programs like the cash for clunkers and tax credit for first-time homebuyers. The rebound in US GDP was primarily fueled by government action. It is not clear that the recovery can be sustained when these government programs expire and the Fed begins to withdraw stimulus. There is a great deal of uncertainty about the outlook and sustainability of the recovery for GDP in 2010. In the past, deep recessions historically lead to strong recoveries. Financial crisis produce weak recoveries. Because the global recession was caused by a financial crisis the GDP recovery may be weak.

One of the major headwinds to US growth is the risk that the US unemployment rate will remain elevated throughout most of 2010. According to Blue Chip Economics 1.1mln jobs will be created in 2010. Because the population is growing at a rate of 2mln per year 1.3mln jobs are needed just to keep up with population growth. This means that the US unemployment rate may hover around 10% for most of 2010. According to Career Builder.com one-fifth of US employers plan to add full-time jobs in 2010, this is up 14% from last year, just 9% said they plan to cut headcount in 2010 and 61% plan no change in staffing. A number of economists suggest that the headline unemployment rate may actually continue to rise as the labor pool is shrinking and many unemployed who run out severance try to come back into the workforce. Continued high unemployment will limit consumer spending. There is doubt of whether the increase in consumer spending during Q3 will continue in 2010 as government support plans expire. The US savings rate has been rising as consumers try to reduce debt burdens and fear becoming unemployed. If consumers continue to increase saving it will add an additional headwind for the US recovery.

There are some reasons for optimism about the potential for a brisk recovery in early 2010.The manufacturing sector continues to show improvement. US industrial production has posted growth in three of the last four quarters. Greg Ip writes in this week’s Economist that there are number reasons for optimism about the US recovery in 2010. One is the fact that business inventories are deeply depressed. The restocking of inventories will boost factory production. Chicago PMI for December rose to its highest level since 2006. Another potential positive for the outlook for the US economy is the rebound in US housing market. The US housing market has improved and shows sign of stabilization. According to Ip the housing market will benefit because the inventory of new homes are at their lowest level in 17 years. The outlook for housing remains uncertain.  A number of analysts suggest that the housing market remains weak and that the recovery was driven by foreclosures and short sales. The Fed announced plans to add additional support to government mortgage agencies (Fannie Mae, Ginnie Mae and Freddie Mac) and the tax credit for first time home buyers has been expanded to April 2010. This could keep the recovery in US housing market going during the first half of 2010. It is uncertain what happens to the housing market when the Fed stops buying mortgage-backed securities next year.

Another positive for the US economic outlook is that capital spending is expected to rise. Ip suggests that with capital spending at 40 year low there is nowhere to go but up. He also expects continued support for growth from the Obama administration’s 787bln stimulus plan. The remainder of the stimulus money is expected to be gradually dispersed in 2010.

Sustaining US recovery in 2010 will require an increase in private spending and income growth. According to Ip increased US savings rate and high unemployment will limit consumer spending. In addition, consumer debt burdens remain high and could become more costly as interest rates rise in 2010. Rising interest rates coupled with the withdrawal of fiscal and monetary stimulus will reduce GDP growth and increase the risk of a double dip recession in mid-2010. If recession returns midyear, unemployment would likely surge and we could see an increased risk of deflationary spiral in the US. Because interest rates are already at zero and the budget deficit is soaring there would be few policy options to respond to a double dip recession. Also there is significant opposition in the US to increase government spending because of the record US budget deficit. President Obama may not want to take the political risk that could emerge if the administration calls for a second stimulus plan to sustain the recovery. Some economist’s question how effective the stimulus plan has been and the cost of a new stimulus plan would likely be met with significant opposition from deficit hawks.

Additional risks for the sustainability of the US recovery in 2010 include continued low-level of lending by banks and the prospect for new financial regulation. Despite interest rates near zero and large government bailouts bank lending to businesses remains weak. Obama administration officials are encouraging banks to lend. Regulators are expected to raise capital requirement for banks and this may also hurt lending and slow the pace of the US recovery. The proposed new regulations on financial institutions seem to be at counter purposes to the administrations call for increased lending.

The final wild card in 2010 is the uncertain outlook for inflation. If the stimulus is not removed in a timely manner the combination of massive government spending and the huge increase of the Fed’s balance sheet could boost inflation as the economy gains momentum. The Fed currently does not see an immediate risk of inflation but expectations could change quickly in 2010 if the economy grows at a faster pace than most analysts expect. Look for a fairly brisk US economic growth in early 2010 and growth will likely weaken in the second half of the year. Calls for a new government spending to combat the risk of a double dip recession could spark renewed selling of the USD in the second half of 2010 as fiscal worries re-emerge. Happy New Year!

Daily Forex Report - USD higher on surge in Chicago PMI

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• USD: Higher, stock rally stalls, optimism about US recovery fuels debate over timing of Fed tightening
• JPY: Lower, fiscal worries and widening yield gap pressure JPY, fear JAL will file for bankruptcy
• EUR: Lower, EU M3 unexpectedly declined in November, Madrid downgrade by S&P
• GBP: Higher, concern about UK debt, sharp rebound in cross to EUR and JPY
• CAD and AUD: AUD & CAD lower, tracking the decline in the price of gold and equities

Overview  
USD traded higher Wednesday supported by fiscal worries in Japan and the UK and optimism about the US recovery. S&P warns that Japan’s sovereign debt rating may be cut if Japan does not take action to reduce its debt. The Telegraph reports that UK debt is worse than Italy’s. Weaker equity market trade and a Moody’s downgrade of Abu Dhabi Commercial Bank rating sparked safe haven demand for the USD. JPY was also pressured by report and Japan Airlines may be on the verge of filing for bankruptcy. EUR was pressured by report of an unexpected decline in EU M3. The decline in M3 generates concern about economic recovery in the EU. GBP experienced a sharp rebound in cross trade to the EUR in reaction to report that S&P has downgraded too regions in Spain. The downgrade raises the risk of a downgrade of Spain’s sovereign debt rating. Commodity currencies were pressured by weaker equity market trade and decline to one week low the price of gold. USD is supported by optimism about the US recovery and speculation that improving outlook for the economy will cause the Fed to begin to withdraw stimulus. US economic data was positive with Chicago manufacturing PMI rising more than expected. The Chicago PMI rise fuels optimism about the recovery in the US manufacturing sector. The direction of equity markets and sovereign debt risks are the main drivers for this week’s FX trade.

Today’s US data:
Chicago December PMI came in at 60, a reading of 55 was expected.

Upcoming US data:
On December 31st initial claims for week ending 12/26 will be released expected to rise by 5k to 457k.

JPY
JPY traded at a three month low versus the USD pressured by worries about Japan’s sovereign debt rating and widening of US/Japan bond yield gap. S&P warns that Japan’s sovereign debt rating may be cut if steps aren’t taken to cut Japan’s rising debt. Monday, Japan announced a record ¥92.3trln budget for fiscal 2010/11. For the first time since World War II Japan’s bond issuance will exceed tax revenue. US/Japan ten year bond yield spread is at its widest level in two years. Improving outlook for US recovery and uncertainty about the outlook for Japan’s economy pressured the JPY as the Fed is expected to start to tighten monetary policy sometime in 2010 and the BOJ is expected to maintain current monetary policy. The divergence in the outlook for Fed and BOJ policy is a negative for the JPY. There was little reaction to report that the Japanese government has announced a long-term strategy aimed at promoting GDP growth average 2% for the next decade. Japan’s Finance Minister Fujii said he expects the Japanese economy to grow next year and downplayed the risk of double dip recession in Japan. His comments failed to boost interest in the JPY. Japanese markets will be closed Thursday.

Key technical levels to watch in USD/JPY include support at 91.10 the December 24th low with resistance at 92.55 the September 21st high and 93.30 the September 7th high.

EUR
EUR traded lower pressured by report of an unexpected decline in EU November M3, weaker equity market trade and S&P downgrade of Madrid’s debt rating. EU November M3 declined by 0.2%, a 0.3% rise was expected. Public-sector loans in the EU declined for the third consecutive month. The drop in public-sector loans is a threat to the EU economic recovery. Equity markets were pressured by the reemergence of concern about sovereign debt risks in the UK and Japan. The decline in equity markets sparked safe haven demand for the USD as risk appetite falls. There was little reaction to the release of the Swiss KOF index for December which posted an improvement to 1.68 from 1.62 last month. EUR/CHF traded below 1.4900 but there was no indication of SNB intervention to try and limit CHF gains. EUR traded to the day’s lows pressured by a wave of liquidation in the EUR/GBP cross sparked by S&P downgrade of the Aragon region in Spain.

The technical outlook for the EUR is mixed to negative as the EUR fails to holds above 1.4400. Expect EUR support at 1.4218 the December 22nd low with resistance at 1.4503 the December 15th high.

GBP
GBP opened lower pressured by concern about the outlook for UK debt and risk of possible downgrade of the UK sovereign debt rating. The Telegraph reports that UK debt position is riskier than Italy’s. Rating agencies have warned that the UK does not take credible action to reduce its deficit that the UK AAA sovereign debt rating could be cut. Moody’s says that the UK must show that it will take action to bring down its deficit to avoid a threat to its credit rating. We noted in the special report yesterday that he GBP is vulnerable to the concern about the UK debt outlook and election uncertainty. Last night UK PM Brown pledged to reduce the deficit at a reasonable pace without choking off the recovery. Brown went on to say that the recovery remains fragile. His comments failed to instill confidence in the UK fiscal outlook or the GBP. The UK will hold a general election sometime after March of 2010 and before June 3rd. There is growing concern that the UK election may result in a hung parliament with no political party gaining in the UK Parliament may make it difficult for the UK to take action to reduce its debt. Tuesday a group of economists criticized the UK government’s irresponsible failure to come up with a convincing plan to reduce the UK budget deficit. If the UK government fails to take credible action to reduce the budget deficit the UK is at risk of losing its AAA sovereign debt rating. UK budget outlook will be a key campaign issue and election uncertainty may add selling pressure to the GBP. GBP staged a sharp rebound in cross to the EUR sparked by S&P downgrade of Madrid’s debt. The downgrade shifts focus from UK debt worries to fiscal troubles facing the EU. Sterling traded higher versus the USD supported by cross gains to EUR and JPY.

This week’s UK economic calendar includes the December 31st release of December Nationwide house price index expected at 0.7% compared to 0.5% last month. November consumer credit and mortgage applications will also be released on December 31st. Consumer credit is expected at -0.45bln compared to -0.579bln last month and mortgage applications are expected at 58k compared to 57.3k last month.

The technical outlook for GBP is mixed as GBP rallies above 1.6000. Expect near-term support at 1.5708 the October 13th low with resistance at 1.6070 the December 29th high and 1.6164 the December 21st high.

CAD
CAD traded lower pressured by weaker equity market trade and a decline in the price of gold. The decline in equity markets dampens demand for growth based currencies. Tuesday the CAD traded at its highest level since October supported by firmer equity market trade and improving risk sentiment. Today’s price action reflects concern about credit risks as Moody’s downgrades of Abu Dhabi Commercial Bank and fiscal worries re-emerge for the UK and Japan. As we approach year-end investors are debating whether the rally in global equity markets will continue into 2010 and if optimism about the US and global recovery is justified. CAD has outperformed with support from improving growth outlook in North America and less dovish BOC policy bias.  At the BOC policy meeting in December the BOC reaffirmed its pledge to leave interest rates at record lows through June 2010 as long as inflation remains in check. Last week BOC Governor Carney said that the BOC’s pledge to keep rates low until mid to 2010 is conditional and the BOC has flexibility to shorten the time frame for the rate commitment. Carney’s comments appear to open the door for an earlier BOC rate hike if inflationary pressures continue to mount.

No major Canadian economic data is due for release this week.

The technical outlook for CAD is mixed as USD/CAD traded above 1.0500. Look for near-term support at 1.0267 the October 20th low with resistance at 1.0580 the December 23rd high.

AUD
AUD traded lower tracking weaker equity markets and the decline in commodity prices. AUD price direction is closely correlated to the outlook for the global recovery and risk sentiment. Today’s decline in equity markets contributes to a decline in risk appetite and sparked liquidation selling pressure in AUD. Tuesday the AUD traded sharply higher supported by firmer equity market trade and rising copper prices. Trading conditions remain extremely thin as we approach year-end. AUD had been experiencing significant selling pressure sparked by diminished RBA rate hike speculation and concern that recent RBA rate hikes have contributed to weaker than expected domestic growth in Australia. At the start of December investors were looking for the RBA to hike rates by 50 bps in February. The trade now is looking for the RBA to pause in its tightening cycle because the sustainability of the economic recovery in Australia is less certain. AUD downside was limited by gains in cross trade to the JPY with JPY pressured by concern about Japan’s sovereign debt rating and declining Japanese bond yields.

This week’s Australian economic calendar includes the December 31st release of November private sector credit expected up 0.1% compared to flat last month.

The technical outlook for the AUD is mixed as the AUD traded above 8950. Expect AUD support at 8783 the December 24th low with resistance at 9070 the December 16th high.

Morning Notes - USD higher, fiscal worries pressure GBP and JPY

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FX Highlights

• The USD is trading higher as stocks decline and worries over sovereign debt risks re-emerge, Moody’s downgrades Abu Dhabi Commercial Bank, UK Telegraph reports that UK debt position is worse than Italy’s, S&P warns of a Japanese rating cut if steps aren’t taken to cut debt, USD trades at two month high versus JPY, Swiss KOF indicator continued to show improvement, EU money supply growth unexpectedly fell in November, US consumer confidence improved in December fueling optimism about US recovery, optimism about US recovery and speculation that the Fed will withdraw stimulus measures as the economy recovers supports the USD, commodity currencies pressured by drop in the price of gold to one-week low
• Focus turns to today’s release of Chicago PMI and US bond auction
• S&P may cut Japan’s sovereign debt rating if steps aren’t taken to reduce Japans deficit, Japan announces a long-term strategy that aims to boost growth to 2%, JPY lower
• EU November M3 falls by 0.2%, a 0.3% rise was expected, November leading index rose by 0.7%, EUR mixed
• UK PM Brown pledged to reduce the deficit and support the economy, GBP lower
• Swiss December KOF indicator rose to 1.68 from 1.62 last month, CHF flat
• Moody’s downgrades Abu Dhabi Commercial Bank, the downgrade rekindles credit worries
• US five year treasury yields rose to the highest level since July at 2.66%, indirect bids in Tuesday’s five year note auction were just 44%, the recent average for indirect bids was 48.2%
• One fifth of US employers plan to add fulltime jobs in 2010, this is up 14% from last year, just 9% said they plan to cut head count in 2010 down from 16% in 2009, 61% plan no change in staffing
• ABC news reports that it’s US 2009 consumer confidence survey was the worst in 24 years
• US equity markets set to open lower, European equities 0.5% lower, Nikkei closed 91 points lower

Upcoming Events

• US - Wednesday, Chicago PMI for December will be released expected at 55 compared to 56.1 last month
• CAN - Wednesday, no major Canadian economic data is due for release today