• The dollar fell versus most major currencies on Thursday following an unexpected decline in December US retail sales. The greenback and US interest rates have been falling since last week’s disappointing employment report. The weak retail sales and NY Fed President William Dudley’s assessment that interest rates may remain low for at least six months and possibly two years decreased bets on Fed interest-rate increases and pressured the greenback. The S&P 500 rose 2.78 to close at 1,148.46 before Intel’s stronger-than-expected earnings announcement. The yen rose, reversing earlier losses from an unexpected decrease in Japanese machinery orders. The euro declined modestly. The European Central Bank held its refinance rate at 1.00% and said interest rates were appropriate and risks were balanced. ECB President Jean-Claude Trichet said the eurozone economic outlook is unclear and Greece will not get a special treatment. Sterling rose for a fifth straight day. The Canadian dollar reached the highest level since October.
• The AUD/USD rose as Australia’s employment surged more than estimated. While the odds of a US rate hike decreased, the strong Australian labor market is boosting prospects for another RBA interest-rate increase. The AUD/USD is also supported by robust Chinese economic growth and booming commodity markets. After breaking its long uptrend in early-December, the AUD/USD fell but reverse its decline before Christmas. The pair is now approaching mid-October’s high, which is important resistance. If this resistance is broken, the pair’s ascent will continue. There are resistance in the 94 area and support in the 90. We believe the pair will trade in this range for a while.

Financial and Economic News and Comments

US & Canada

• US retail sales unexpectedly declined 0.3% m/m to $353.0 billion in December after an upwardly revised 1.8% m/m increase in November, data from the Commerce Department showed, signaling the economic recovery may be slow. Retail sales excluding autos unexpectedly declined 0.2% m/m, following November’s upwardly revised 1.9% m/m gain. Retail sales rose 5.4% y/y in December and rose 5.2% y/y less autos.

• US initial jobless claims increased a more-than-expected 11,000 to 444,000 in the week ending January 9 from the previous week’s downwardly revised 433,000, figures from the Labor Department showed. The 4-week moving average declined 9,000 to 440,750, the lowest level since August 30, 2008. Continuing claims in the week ending January 2 dropped 211,000 to 4,596,000, the lowest level since January 10, 2009, from the preceding week’s upwardly revised 4,807,000. The 4-week moving average of those continuing claims decreased 151,500 to 4,855,000. The insured unemployment rate for the week ending January 2 declined to 3.5% from the prior week’s 3.6%.
• US import prices were unchanged m/m in December after a downwardly revised 1.6% m/m increase in November, according to data from the Labor Department. Nonfuel import prices grew 0.5% m/m in December but declined 0.2% y/y. December import prices rose 8.6% y/y, as forecast. Export prices increased 0.6% m/m in December after an upwardly revised 0.9% m/m in November. December export prices climbed 3.4% y/y.

• US business inventories grew for a second month in November, increasing a more-than-expected 0.4% m/m to $1,313.2 billion, after an upwardly revised 0.4% m/m October increase, according to data from the Commerce Department. Business sales rose 2.0% m/m to $1,027.4 billion, following October’s upwardly revised 1.4% m/m gain. The inventory-to-sales ratio was 1.28 at the end of November, down from 1.30 in October and 1.43 in November 2008. Inventories fell 11.1% y/y in November; sales declined 0.4% y/y.

Europe

• Eurozone industrial production increased a more-than-expected 1.0% m/m in November after a revised 0.3% m/m decline in October, according to IP data from Eurostat. November IP was down 7.1% y/y, a 19th consecutive year-on-year decline but the smallest since October 2008, following a revised 10.9% y/y October decrease.

• Germany’s consumer prices increased 0.8% m/m in December (vs. a previously reported +0.7% m/m) after a 0.1% m/m decline in November, according to final December CPI data from the Federal Statistical Office. The consumer-price inflation rate rose to 0.9% y/y (vs. a previously reported +0.8% y/y) from November’s 0.4% y/y. The harmonised index of consumer prices, calculated for European purposes, advanced an unrevised 0.9% m/m in December after a 0.2% m/m decrease in November. The HICP rate rose to an unrevised 0.8% y/y, the highest level since April 2009, from November’s 0.3% y/y.

Asia-Pacific

• Japan’s private-sector machinery orders, excluding volatile ones, unexpectedly fell 11.3% m/m in November, the deepest fall in a year, to ¥625.3 billion ($6.79 billion), the lowest monthly booking since records began in April 1987, after a 4.5% m/m decline in October, according to data from the Cabinet Office. November core machinery orders fell 20.5% y/y, following a 21.0% y/y October drop.
• Japan’s domestic corporate goods prices grew 0.1% m/m in December, the first increase in five months, after a downwardly revised 0.0% m/m in November, according to the Bank of Japan corporate goods price index. December CGPI was down 3.9% y/y, a twelfth consecutive year-on year decline, following November’s revised 5.0% y/y decrease.
• Australia’s seasonally adjusted employment jumped a much more-than-anticipated 35,200 in December, a fourth consecutive monthly gain, to 10,905,900, after an upwardly revised 31,400 rise in November, figures from the Australian Bureau of Statistics showed. The unemployment rate unexpectedly declined to an 8-month low of 5.5% from November’s downwardly revised 5.6%. Full-time employment increased 7,300 to 7,635,100 in December and part-time jobs rose 27,900 to 3,270,800. The participation rate was unchanged at 65.2%. The 135,700 employment rise in the four months through December was the largest 4-month gain since 2006, increasing pressure on the Reserve Bank of Australia to hike interest rates.

FX Strategy Update

*Expert Market Commentaries, charts and information are provided by Hans Nilsson of Globicus International, Inc., a registered third party CTA, are intended for educational purposes only and do not constitute trading recommendations.

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