The Forex Daily Digest – December 9, 2009

The USD shed as much as one percent of its value against the JPY as the Japanese currency rallied, continuing its bounce back this week from heavy selling the previous week. Yesterday, the USD increased to its highest level against the EUR in five weeks and gained against other major currencies, as worries about high levels of debt in Greece and Dubai led investors to buy assets that would offer protection in a crisis.

Crude oil climbed, ending a five- day decline, as the USD fell and after an industry report showed a fall in U.S. crude inventories. The American Petroleum Institute said crude inventories fell by 5.82 million barrels last week. Gold gained in London as a weaker USD attracted some investors to the metal. Bullion futures were little changed in New York.

The GBP fell against the USD and the EUR after Moody’s Investors Service described the U.K. as weaker than top-rated peers including Germany and France. Britain and the U.S. had “resilient” Aaa ratings, as opposed to the “resistant” top ratings on Canada, Germany and France. The GBP extended its declines after a report showed U.K. manufacturing unexpectedly stalled in October. Factory output was unchanged after gaining 1.5 percent in September, the Office for National Statistics said today in London.

Banks improved estimates for the NZD for the first time in almost a month, gauging the nation’s improving economy will force the central bank to raise interest rates from a record low as soon as March. According to analysts’ estimates, the NZD will likely appreciate 6 percent to 75 U.S. cents by the end of the first quarter. The forecast had been for 74 cents since Nov. 11 until Commerzbank AG and Scotia Capital turned more bullish this month. Demand for the AUD weakened after reports showed consumer confidence fell in December for a second month and home-loan approvals declined.

A senior Chinese central banker has offered Beijing's clearest defense to date of its currency policy amid rising criticism from overseas. The banker appeared to blame the USD’s weakness for putting pressure on the yuan to appreciate. The People's Bank of China’s Vice Governor said China has acted responsibly by keeping the yuan exchange rate stable during the financial crisis, despite a drop in exports, and repeated Beijing's view that economic policies, not exchange rates, are the key tools for balancing global demand.

In other news from Asia, the North Korean won has tumbled 96 percent against the USD after the government revalued the currency last week. North Korea’s regime ordered citizens to exchange 1,000-won notes for a new 10-won bill, the country’s first currency reform in 17 years. The move has raised speculation that the government’s hold on power has been relaxed by allowing limited free-market activities, such as trading food and goods.

Federal Reserve Governor Elizabeth Duke said that the economic recovery of many U.S. low income areas remains obstructed as lenders decide completing some foreclosures simply isn't worth the cost, casting many properties into "legal limbo." Duke did not directly comment on the outlook for the economy or interest rates in a speech on neighborhood stabilization. She did say that much remains to be done to stabilize communities hit hard by high rates of foreclosure.

On Thursday’s economic calendar watch for Initial Jobless Claims, the U.S. Trade Balance, and the Treasury Budget figures. Scheduled earnings releases include Capital Gold Corp, Learning Tree, Ciena, Smithfield Foods and Sports Direct International.

Happy trading,

James Dicks