The Forex Daily Digest – September 16, 2009

The USD fell yesterday, dropping to the lowest level in a year and reversed earlier advances against major counterparts after a pair of economic reports said retail sales and producer prices rose more than economists expected, encouraging speculation that the economy is reviving. For months, the dollar has been inclined to move in the opposite direction as equities as investors' willingness to buy riskier assets fluctuates. That trend has shown signs of diminishing in the past month or so, while return to its more traditional relationship to economic data.

U.S. retail sales increased a seasonally adjusted 2.7% in August, which is the biggest increase in more than three years. The figures were mainly improved by government subsidies for cars, higher gas prices and busy crowds at the malls. Sales were stronger than the 2.3% expected by economists, largely because of widespread sales gains outside the gas stations and the auto lots. Sales are down 5.3% compared to a year ago.

The CAD strengthened the most in more than a week against the USD as a result of the August retail numbers in the U.S., boosting investor appetite for higher-yielding currencies. The loonie has been between C$1.1125 and C$1.0633 since the end of July. It fell as much as 0.4 percent yesterday before the U.S. retail sales report was released.

The JPY fell dropped against most of its major counterparts on speculation that the largest gain in U.S. retail sales in three years encouraged investors to sell the currency and buy riskier assets elsewhere. The USD regained earlier losses against the EUR and dropped to the lowest level in 2009 as global equities advanced and traders bought gold as a hedge against inflation.

Japan’s outgoing Finance Minister Yosano said that any sudden currency movements are “undesirable” and a stronger yen may hurt the country’s exporters. Yosano said that a stronger yen will have a “big effect” on the nation’s export results and weaken their competitiveness. The Japanese Parliament is expected to appoint Yukio Hatoyama as prime minister on Wednesday, after his Democratic Party of Japan defeated Taro Aso’s Liberal Democratic Party in an August 30th election.

And there was some good news on Tuesday. Federal Reserve Chairman Ben Bernanke said that the recession has ended, at least based on the numbers. Bernanke added there is a risk that labor markets will remain weak through next year because growth will be too weak to create jobs. Many economists now expect the labor market to slowly start its recovery.

On the economic calendar today, look for the August Consumer Price Index, also the seond quarter Current Account numbers, July TIC Flows, Capacity Utilization and Industrial Production for August. Finally, Crude Inventories are scheduled to be released at 10:30 (ET) this morning.

There are still a few major companies scheduled to release second quarter earnings. Today you can expect Oracle, CKE Restaurants, Dress barn, Herman Miller, and Apogee Enterprises.

Happy Trading,

James Dicks