• The dollar fell on Friday as risk sentiment and US stocks rose. US trade deficit widened more than anticipated on strong import growth and US consumer confidence unexpectedly fell. The S&P 500 rose 6.24 to 1,093.48. The yen was supported by yuan revaluation speculation. The euro rose on Q3 GDP data showing the eurozone economy had its first quarterly expansion since Q1 2008. Sterling was boosted by a planned merger of British Airways and Iberia. The Canadian dollar advanced on global recovery optimism and a narrowing Canadian trade deficit. The Australian dollar closed above the 0.93-handle, supported by Chinese revaluation speculations and improving global economic growth.
• The US dollar index fell to 75.24 today. The long-term dollar index is near a historical low. The only time the index traded lower than the current level was in the spring and summer of 2008. The 75-handle support had been successfully tested the last few weeks. If this support is broken, the index will likely fall to the 71-area support that could be an important double bottom. There is resistance in the 77-78 area. If this resistance is broken, the dollar index’ technical outlook will improve.

Financial and Economic News and Comments

US & Canada

• The US trade deficit widened a larger-than-expected 18.5% m/m in September, the most in a decade, to $36.5 billion, the highest level since January, from a revised $30.8 billion in August, according to figures from the Commerce Department. Exports increased 2.9% m/m in September to $132.0 billion, the highest level this year. Imports rose 5.8% m/m, the most since March 1993, to $168.4 billion. Exports fell 13.2% y/y in September; imports dropped 20.6% y/y.

• US import prices rose a less-than-expected 0.7% m/m in October, the seventh rise in eight months, after an upwardly revised 0.2% m/m increase in September, according to data released by the Labor Department. The October rise was led by a 1.8% m/m increase in fuel prices. Excluding petroleum, import prices advanced 0.4% m/m in October but decreased 2.9% y/y. Export prices increased 0.3% m/m in October, the fifth advance in seven months, after a revised 0.2% m/m decline in September. Import prices fell 5.7% y/y in October; export prices fell 3.4% y/y.

• The Reuters/University of Michigan US consumer sentiment preliminary index for November declined to 66.0 from 70.6 in October, indicating US consumer confidence unexpectedly slipped to the lowest level in three months, Reuters and University of Michigan data showed. The current economic conditions index declined to 69.6 in November from 73.7 in October. The consumer expectations index fell to 63.7 from October’s 68.6.

• Canada’s trade deficit narrowed more than expected in September to C$927 million ($881 million), a 3-month low, from a revised C$1.991 billion in August, figures from Statistics Canada showed. Exports increased 3.5% m/m in September to C$30.3 billion, while imports declined 0.1% m/m to C$31.2 billion.

Europe

• Eurozone GDP grew a slightly less-than-expected 0.4% q/q in Q3 2009, the first quarterly expansion since Q1 2008, after a 0.2% q/q decline in Q2, flash Q3 GDP estimates released by Eurostat showed, indicating the eurozone economy officially emerged from the recession. The Q3 GDP fell 4.1% y/y, easing from Q2’s 4.8% y/y contraction.

• Germany’s GDP rose a seasonally adjusted 0.7% q/q in Q3 2009, the second rise since Q1 2008, after an upwardly revised 0.4% q/q increase in Q2, according to preliminary Q3 GDP data from the Federal Statistical Office, suggesting Germany’s economic recovery accelerated. The Q3 economy shrank 4.8% y/y wda and 4.7% y/y nsa; however, easing from Q2’s revised contraction of 5.8% y/y wda and 7.0% y/y nsa.
• Switzerland’s producer and import prices posted the first decline in five months, unexpectedly falling 0.4% m/m in October after a 0.2% m/m increase in September, according to data released by the Swiss Federal Statistical Office. October producer and import prices fell 4.7% y/y, following September’s 4.9% y/y decrease.

Asia-Pacific

• Japan’s industrial production advanced 2.1% m/m in September, a seventh consecutive month-on-month gain and revised up from a preliminarily reported 1.4% m/m increase, final September IP data from the Ministry of Economy, Trade and Industry showed, following a 1.6% m/m gain in August. The September IP index was at 85.7. Despite the month-on-month gain, September IP fell 18.4% y/y, revised up from a preliminarily reported 18.9% y/y fall, following a 19.0% y/y August drop.

• Japan’s consumer confidence did not improve further in October amid worries about job-market prospects. The Japanese consumer confidence index excluding one-person households was unchanged at a 23-month high of 40.5 in October after climbing for nine consecutive months, according to data from the Cabinet Office. The index has improved every month since December’s record-low 26.2, adding to Japanese economic recovery signs; however, a number below 50 means pessimists outnumber optimists. Including one-person households, the consumer confidence index increased to 40.8 in October from 40.7 in September.

FX Strategy Update