• The dollar rose on Friday after the People’s Bank of China surprised the markets by announcing further tightening of its monetary stance by raising banks’ reserve requirement by 50 basis points to 16.50% for large banks on February 25, the second increase this year. US retail sales climbed more than expected while consumer sentiment unexpectedly fell. As the dollar pared earlier gains, the S&P 500 recovered most of its losses and closed at 1,075.51, down just 2.96. The USD/JPY rose to the 90.00 resistance and gained modestly for the week. The euro fell for a fifth straight week and touched the lowest level since May 2009, pressured by weak EMU economic growth and lack of details on the Greek rescue package. Sterling declined slightly today but gained for the first week in four. The Australian and Canadian dollars fell modestly today but rose from their oversold positions for the first week in five.
• After reaching the highest level since July 2009, the dollar index pared its gains and closed little changed for the week. The dollar index, although in a strong uptrend and about 8% above its December low, is overbought and below strong resistance in the 81 handle. There are support in the 79 area and important resistance in the 81 area. We expect a consolidation between the support and resistance.

US & Canada

• US retail sales rose a more-than-expected 0.5% m/m in January, the third rise in four months, to $355.8 billion, after a revised 0.1% m/m decline in December, data from the Commerce Department showed. Retail sales excluding autos grew a more-than-expected 0.6% m/m, rebounding from December’s 0.2% m/m decline. Retail sales rose 4.7% y/y in January and rose 4.6% y/y less autos.

• The Reuters/University of Michigan preliminary consumer sentiment index slid to 73.7 in February from 74.4 in January, indicating US consumer confidence unexpectedly declined this month from January’s 2-year high, according to the latest Thomson Reuters/University of Michigan surveys of consumers. The current economic conditions index increased to 84.1 in February from 81.1 in January while the consumer expectations index fell to 66.9 from January’s 70.1.

• US business inventories unexpectedly slipped 0.2% m/m in December, the first decline in three months, to $1,310.7 billion, after an upwardly revised 0.5% m/m increase in November, according to data from the Commerce Department. Business sales rose 0.9% m/m to $1,040.4 billion, following November’s upwardly revised 2.4% m/m gain. The inventories/sales ratio was 1.26 at the end of December, down from 1.27 in November and 1.46 in December 2008. Inventories fell 9.7% y/y in December while sales rose 4.7% y/y.

Europe

• Eurozone seasonally adjusted GDP increased a less-than-expected 0.1% q/q in Q4 2009, the second quarterly expansion since Q1 2008, after a 0.4% q/q increase in Q3, according to flash Q4 GDP estimates released by Eurostat. The Q4 GDP declined 2.1% y/y sa, easing from Q3’s 4.0% y/y contraction. The economy contracted 4.0% over the whole year 2009.

• Eurozone seasonally adjusted industrial production unexpectedly slid 1.7% m/m in December, the largest decline in 10 months, after an upwardly revised 1.4% m/m gain in November, according to IP data from Eurostat. December IP fell 5.0% y/y wda, a 20th straight year-on-year fall; however, easing from a revised 6.9% y/y November slide. The average IP for 2009 dropped 14.9%, compared with 2008.

• Germany’s seasonally adjusted GDP stagnated at 0.0% q/q in Q4 2009 after expanding 0.7% q/q in Q3 and 0.4% q/q in Q2, according to preliminary Q4 GDP data from the Federal Statistical Office. The Q4 GDP fell 2.4% y/y wda and 1.7% y/y nsa, easing from Q3’s 4.8% y/y wda and 4.7% y/y nsa contraction.

……Asia-Pacific

• The Japanese consumer confidence index excluding one-person households rose to a higher-than-expected 39.0 in January from 37.6 in December, indicating Japan’s household confidence climbed for the first time in four months, data from the Cabinet Office showed. A number below 50 means pessimists outnumber optimists. Including one-person households, the consumer confidence index advanced to 39.4 in January from 37.9 the prior month.

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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