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Daily Forex Strategy Briefing

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Greenback Rallies Yet Bearish Outlook

Fri, Dec 19 2008, 00:38 GMT
by Hans Nilsson

CMS Forex

Greenback Rallies Yet Bearish Outlook

• The dollar rallied against most major currencies for a second day. Despite the two-day rally, the greenback has recovered only part of its sharp declines as the Fed interest-rate cut to a historic low is making the dollar outlook more bearish. The White House announced it will give US auto makers a $17.4 billion financial rescue package. Gold fell for a second day and oil headed for its second-largest weekly decline in more than five years as the global recession deepens. The euro declined after the European Commission said Europe may suffer a “substantial” impact from the financial crisis in 2009. The yen fell after the Bank of Japan lowered its benchmark interest rate to 0.10%. Sterling declined against the dollar but recovered some of recent steep losses against the euro following an unexpected rise in UK consumer confidence. The Australian dollar dropped on falling commodity prices.


• The USD/CAD rose after successfully testing the 1.20-area support. Canada’s core inflation unexpectedly accelerated, making it harder for the inflation targeting Bank of Canada to cut interest rates. The Canadian government agreed to help backstop a C$32 billion ($26.4 billion) restructuring plan for insolvent commercial paper. The pair is in a wide trading range between 1.15 and 1.30. The penetration of the steep uptrend and triple top makes it more likely the short-term move is down. However, as with all the currency pairs, thin trading during the holidays means volatile trading conditions.

Financial and Economic News and Comments

US & Canada

• Canada’s consumer prices declined a less-than-expected 0.3% m/m in November after falling 1.0% m/m in October, Statistics Canada reported. The consumer-price inflation rate slowed to 2.00% y/y from October’s 2.6% y/y pace on falling gasoline prices, still exceeding expectations. Core inflation, which excludes energy and other volatile items, unexpectedly increased 0.7% m/m in November on rising food prices, following October’s 0.2% m/m decline. The core inflation rate unexpectedly accelerated to 2.4% y/y, following October’s 1.7% y/y pace. The accelerating core CPI will make it harder for the Bank of Canada to cut interest rates as deeply as in the US.

• Canada is headed into a recession in 2009, with rising unemployment, declining income growth and a stalled economy, RBC Economics reported.


• President George W. Bush announced $13.4 billion in emergency loans to prevent the collapse of General Motors and Chrysler, and another $4 billion available for the automakers in February, with the bailout conditioned on the companies undertaking sweeping reorganization plans to return to profitability.

Europe

• The German PPI was down a more-than-expected 1.5% m/m in November, indicating Germany’s producer-price inflation fell the most since records began in 1949, after unchanged in October, the Federal Statistics Office said. The PPI rose 5.3% y/y.


• UK business investment fell a more-than-expected 1.3 q/q in Q3 to £35,579 million, according to the Office for National Statistics. Business investment declined 0.1% y/y.


• UK consumer confidence unexpectedly improved to -33 in December on the declines in sales taxes and gasoline prices, from -35 in November, the GfK Group reported.

Asia-Pacific

• Japan’s all-industry activity index declined a less-than-expected 0.5% m/m in October, following September’s upwardly revised flat reading, data from the Ministry of Economy, Trade and Industry showed. The tertiary industry index increased 0.4% m/m in October following September’s 0.7% m/m decline, while the manufacturing index fell 2.5% m/m following September’s 1.3% m/m rise. The construction index increased 0.9% m/m compared to September’s flat reading. The government index increased 0.2% m/m following September’s 0.9% m/m increase.


• The Bank of Japan lowered its key interest rate to 0.10% from 0.30%, injected more funds into the banking system and announced plans to buy commercial paper as the recession deepens. Purchasing corporate debt and assuming credit risks of companies is an “exceptional step taken by a central bank,” according to the BOJ statement. BOJ Governor Masaaki Shirakawa said the rate cut doesn’t mean a return to the BOJ’s 2001-2006 zero-rate policy, while adding that the possibility of another rate cut couldn’t be ruled out.

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Published on  Sun, Dec 21 2008, 23:09 GMT