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Daily Currency Market Focus

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US Dollar: The Good News and Bad News on Christmas Eve

Wed, Dec 24 2008, 16:51 GMT
by Kathy Lien

GFT

Thin market conditions continue to dominate in the currency market on the eve before Christmas. Trading ranges for all of the major currency pairs have been relatively narrow, especially when compared to the large swings that have been characteristic of the third and fourth quarters of 2008. There were both upside and downside surprises in this morning’s economic data but even the upside surprises were numbers that reflected a contraction in US economic activity. This has fueled the mild sell-off in the greenback that began at the European open.

The Good News

Since it is the holidays, we will start with the good news. Durable goods orders fell less than the market expected in the month of November. The third decline in four months was primarily driven by a drop in Boeing orders. A strike that ended in the first week of the month could have also contributed to the lower output. Stripping out the transportation component of the report, durable goods orders actually increased 1.3 percent, the first rise in 5 months. The rebound in durable goods ex transportation suggests that corporate investments may be recovering. Another upside surprise was in personal spending which fell less than the market expected, but this was still the fifth month in a row that consumers have reduced their spending. The 30-year mortgage rate also fell to a record low today and that will hopefully help to stabilize the housing market. Low mortgage rates really do matter as applications increased 48 percent last week. Although applications can fluctuate a lot, this is the second largest rise since March and is the fourth increase in five months. Meanwhile we are also continuing to watch the move in oil prices which remains near 4 year lows.

The Bad News

As for bad news, personal income dropped 0.2 percent while jobless claims soared to 586k, the highest level in 26 years. Claims have been above 500k since the beginning of November and the US labor market is on track to lose 2 million jobs this year. Given that 1.91 million jobs have already been lost in 2008, 2 million will be easily surpassed in the month of December. US unemployment is expected to rise from 6.7 percent to 7 percent in December. There are no economic releases due for the remainder of the week. The next day that we expect US data is Tuesday December 30th.

All the financial markets are closed on Christmas Day. Foreign exchange trading with GFT will reopen on December 26 at 6:00am ET.

EUR/USD: HOW JANUARY SEASONALITY IMPACTS THE EUR/USD

Technical analysis is based on the idea that past price patterns repeat themselves and Seasonality is rooted in this very same concept. Stock market traders may be familiar with the concept of Seasonality if they have ever heard of the term Sell in May and go away. Interestingly enough, Seasonality also happens in the currency market. According to the following chart, over the past 10 years the EUR/USD depreciated in the month of January 70 percent of the time. If we expand the chart to include 1997, the EUR/USD actually dropped in the month of January 8 out of the past 11 years. Of course, like all technical analysis, the pattern does not always repeat itself which is why we saw the EUR/USD rose in the month of January during 2003, 2006 and 2008. There are a lot of factors working against the US dollar in the beginning of 2009 but seasonality is one factor that may help.

Published on  Wed, Dec 24 2008, 16:54 GMT