• The dollar traded mixed on Friday following one of the best weeks for the year. The greenback rose against the euro, pound and yen but consolidated gains against the Swiss franc, aussie and loonie. A strengthening US economic recovery, European credit worries and Japanese deflation problems supported the USD. The S&P 500 gained 6.39 to 1,102.47. The USD/JPY rose for the week. The Bank of Japan kept its key interest rate unchanged at 0.10%, as expected, and pledged to fight deflation in Japan. The euro fell for a third straight week. The European Central Bank raised its estimate for EMU bank writedowns by 13%. Sterling declined for a third week. The Australian dollar fell for a fifth week, while the Canadian dollar declined for a second week. The USD/CHF rose for a third week. The Swiss franc advanced as the Swiss National Bank refrained from intervention despite the EUR/CHF trading below 1.50.
• Since breaking its long-term downtrend, the dollar index continued to surge. The rally has been sharp as investors were bearish on the dollar with huge short positions. We don’t think those short positions have been liquidated yet, so the rally may continue next week. Minor resistances are in the 78 and 79.50 areas and a significant resistance is in the 80.50 area. There are supports at the 77 and 76 handles.

Financial and Economic News and Comments

US & Canada

• Michigan remained the state with the highest unemployment rate in November, 14.7%, according to a Labor Department report. The states with the next highest jobless rates in November were Rhode Island, 12.7%, and California, Nevada, and South Carolina, 12.3% each. The unemployment rate in South Carolina set a new series high, as did the rate in Florida (11.5%). New York’s jobless rate declined to 8.6% in November from 9.0% in October. North Dakota continued to have the lowest unemployment rate, 4.1% in November, followed by Nebraska, 4.5%, and South Dakota, 5.0%.
• Canadian wholesale sales grew 0.3% m/m to C$41.1 billion ($38.5 billion) in October, the fourth gain in five months, after a downwardly revised 0.1% m/m increase in September, Statistics Canada reported.

Europe

• The eurozone seasonally adjusted trade surplus widened more than expected to €6.3 billion ($9.0 billion) in October from a downwardly revised €4.3 billion in September, according to figures from Eurostat. Seasonally adjusted exports declined 0.2% m/m and imports fell 2.2% m/m. In non-seasonally adjusted terms, the trade surplus jumped more than expected to €8.8 billion in October from a downwardly revised €0.9 billion in September, compared with a €1.2 billion deficit in October 2008.

• The eurozone seasonally adjusted current account recorded a €4.6 billion ($6.6 billion) deficit in October (corresponding to a €3.9 billion deficit nsa), narrowing from a revised €5.0 billion deficit in September (corresponding to a revised €4.7 billion deficit nsa), the European Central Bank reported.
• Germany’s producer prices increased only 0.1% m/m in November after no change in October, according to PPI data from the Federal Statistical Office. November PPI declined 5.9% y/y, as forecast, following a 7.6% y/y October drop. Excluding the volatile energy component, producer prices were unchanged m/m and down 2.3% y/y in November.

• The Ifo German business climate index increased more than expected to 94.7 in December from 93.9 in November, indicating Germany’s business confidence rose for a ninth consecutive month and to the highest level since July 2008, data from the Ifo Institute showed. The current conditions index climbed to 90.5 in December from 89.1 in November, while the business expectations index increased to 99.1 from 98.9.

• The UK government had a £20.3 billion ($33 billion) budget deficit in November, the most since records began in 1993, compared with a £15.5 billion deficit a year earlier, according to figures from the Office for National Statistics. The public sector net cash requirement widened to £14.7 billion in November from £10.6 billion a year ago. Net debt totaled £844.5 billion, above 60% of GDP and the largest debt burden since at least 1974.
• UK business investment fell for a fifth consecutive quarter in Q3 2009, falling 0.6% q/q (revised from a previously reported 3.0% q/q decrease), easing the pace of decline from a 10.2% q/q drop in Q2, data from the Office for National Statistics showed. Business investment fell 19.9% y/y (revised from a previously reported 21.7% y/y fall), less steep than Q2’s 21.8% y/y drop that was the largest since records began in 1967.
• The GfK NOP UK consumer confidence index unexpectedly declined to -19 in December from -17 in November, indicating UK consumer confidence weakened for the second time since January, according to data from GfK NOP.

Asia-Pacific

• The Bank of Japan maintained its benchmark interest rate at 0.10%, as forecast, and said it is intolerant of CPI declines amid signs deflation may threaten Japan’s economic recovery. The BOJ statement read: “The Policy Board has concluded that it is appropriate to further disseminate the Bank’s thinking on price stability, by stating more clearly that the Policy Board does not tolerate a year-on-year rate of change in the CPI equal to or below 0 percent and that the midpoints of most Policy Board members’ “understanding” are around 1 percent.”
• Japan’s nationwide department store sales continued their declines in November, falling 11.8% y/y, after a 10.5% y/y October decrease, while Tokyo department store sales fell 11.9% y/y following October’s 13.1% y/y drop, according to data from the Japan Department Store Association.

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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