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The Forex Daily Digest – December 7, 2009

The USD was slightly higher against major rivals other than the JPY this morning, continuing Friday's sharp rally in the wake of a much smaller-than-expected drop in November non-farm payrolls and unexpected drop in the unemployment rate.

Gold futures fell more than 2%, extending their sharp losses, as the USD rose against its major rivals, reducing the appeal of bullion as a hedge against the currency's depreciation. Gold and the dollar have had a strong inverse relationship. The decline in gold prices comes after the metal repeatedly set records. Last Thursday, the metal surged to a high of $1,226.40 an ounce.

The JPY fell 2.5 percent against the USD and 1.3 percent versus the EUR at the end of last week after the U.S. Labor Department said employers cut the fewest jobs since the recession began. The JPY rose against the USD today, after dropping last week by the most since February 1999, extending a pull back from a 14-year high. Traders sold JPY and bought the USD on speculation U.S. interest rates will increase before June.

According to the Royal Bank of Scotland, the AUD and the CAD are likely to gain versus the euro and yen as the U.S. currency may end its “death dive” after the U.S. Non-farm Payroll report was better than expected. The AUD gained a bit today as advertisements for job vacancies jumped in November by the most since May 2007.

The CAD fell against the USD this morning, hit by weak commodity prices and as the U.S. dollar gained on investors’ expectations that U.S. interest rates could rise in the coming months. The dollar hit a five-week high against a currency basket, extending its rally from Friday. The broad-based U.S. dollar strength was also due to weak equity markets down and lower oil and gold prices, both important Canadian exports.

Germany's Economy Minister Rainer Bruederle said after talks with Chinese Commerce Minister Chen Deming that he expected China to relax its fixed exchange rate one day even though it would take some time. Bruederle told reporters, referring to the yuan, that China could switch to floating exchange rates one day but “that can't be done right now." Many of China's trading partners have complained about China's weak yuan and its fixed exchange rate but the Chinese government has shrugged off international pressure to revalue its currency.

There are no key U.S. economic reports on the calendar for Tuesday. On the Wednesday economic calendar look for Wholesale Inventories for October and the Crude Oil Inventories report for the week of December 4.

Among the earnings reports scheduled for release on Tuesday include H&R Block, the Bank of Nova Scotia, The Cooper Companies, Toro and Talbots.

Happy Trading,

James Dicks

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