• The dollar fell and stocks gained on Monday as risk sentiment improved. APEC leaders pledged to maintain economic stimulus and Fed Chairman Ben Bernanke said easy monetary policy will be maintained for the foreseeable future. US retail sales climbed more than expected and business inventories fell less than expected. The S&P 500 rose 15.82 to 1,109.30, the first close above 1,100 since October 2008. The yen gained after the Japanese economy grew more than forecast. Sterling advanced despite November UK house prices falling for the first time in three months. The Canadian and Australian dollars were supported by higher commodity prices.
• The EUR/USD rose for a second day. The gain was temporarily limited after Fed Chairman Bernanke said the central bank is committed to a strong dollar. However, Bernanke was not ready to tighten monetary policy and said the Fed anticipates exceptionally low interest rates are likely to persist for an extended period and that considerable economic challenges remain. The EUR/USD is in a strong uptrend that has been successfully tested several times. There is resistance in the 1.50 area. If this is broken, the EUR/USD will probably rise to the 1.54-area resistance.

Financial and Economic News and Comments

US & Canada

• US retail sales rose a more-than-expected 1.4% m/m in October after a downwardly revised 2.3% m/m decline in September, data from the Commerce Department showed. The rise in October retail sales was due to autos, which climbed 7.4% m/m. Retail sales excluding autos grew a less-than-expected 0.2% m/m in October after a downwardly revised 0.4% m/m advance the prior month. Retail sales declined 1.7% y/y in October and fell 2.6% y/y less autos. Retail sales excluding autos, building materials, and gas advanced 0.5% m/m in October, a third consecutive monthly gain.

• NY manufacturing conditions improved in November, albeit at a somewhat slower rate than in October, according to the latest Empire State Manufacturing Survey released by the Federal Reserve Bank of New York. The NY Fed manufacturing index fell to 23.51 in November from 34.57 in October, remaining in positive territory for a fourth straight month. The new orders index fell to 16.66 from 30.82 and the shipments index decreased to 12.97 from 35.08, remaining in positive territories. The employment index slid to 1.32 from 10.39, remaining slightly positive.

• US business inventories declined a less-than-expected 0.4% m/m to a seasonally adjusted $1.3033 trillion in September after a revised 1.6% m/m decrease in August, according to figures from the Commerce Department. Business sales slid 0.3% m/m to $988.1 billion, following an upwardly revised 1.1% m/m August advance. Inventories fell 13.4% y/y in September; sales fell 13.1% y/y. The inventory-to-sales ratio was unchanged at 1.32 in September, also the same level as September 2008.
• Canada’s manufacturing sales grew 1.4% m/m to C$41.7 billion ($39.8 billion) in September, led by gains in the motor vehicle industry, after a revised 1.8% m/m decline in August, Statistics Canada said.

Europe

• Eurozone consumer prices increased 0.2% m/m in October after being unchanged m/m in September, according to final October CPI data from Eurostat. October CPI fell 0.1% y/y, a fifth consecutive year-on-year fall, following September’s 0.3% y/y decrease. Core consumer-price inflation advanced 0.1% m/m and 1.2% y/y in October.

• UK house prices fell 1.6% m/m in November, the first fall in three months, to £226,440 ($381,024), after a 2.8% m/m gain in October, Rightmove Plc reported. House prices grew 1.6% y/y, the largest year-on-year gain since May 2008, following October’s 0.2% y/y advance. London house prices decreased 3.1% m/m to £403,069 in November, but increased 2.7% y/y.

Asia-Pacific

• Japan’s GDP expanded at an annualized 4.8% rate in Q3 2009, beating expectations, after an upwardly revised 2.7% pace in Q2, preliminary Q3 GDP data from the Cabinet Office showed, registering a second consecutive expansion after Japan’s deepest postwar recession. The Q3 GDP grew a more-than-expected 1.2% q/q, following Q2’s upwardly revised 0.7% q/q increase. The Q3 GDP contracted 4.5% y/y.

FX Strategy Update

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