The Forex Daily Digest – December 11, 2009

The USD recovered early today after U.S. Retail Sales beat the economist’s consensus estimates. Retail sales rose a better-than-expected 1.3% in November which is the third increase in the past four months. The sales gains were widespread across most kinds of retail outlets, including autos, gasoline, department stores and hardware stores. Only clothes and furniture store sales declined. The consensus forecast of Wall Street economists was for retail sales to rise 0.5%.

The CAD moved higher, lifted by strength in oil and gold prices and economic data that reassured investors that the global economy is on a solid growth path. Global equity markets, typically a barometer of risk that often influences movements in the currency, were higher and oil prices rose on a higher demand outlook and strong Chinese industrial output data.

China’s industrial production grew more than economists estimated in November, exports fell the least in 13 months and imports increased, confirming the nation’s role as leader of the world recovery. Factory output reportedly climbed 19.2 percent from a year earlier. That was more than the 18.2 percent median estimate of economists. Exports slid 1.2 percent. Imports rose 26.7 percent.

The JPY fell for a second day against the EUR as U.S. reports showed retail sales rose. The JPY has fallen 1.2 percent versus the EUR this month as signs of a global economic recovery encouraged investors to seek higher-yielding currencies. The AUD headed for a second weekly advance versus its U.S. counterpart as China’s exports posted the smallest drop in 2009. The NZD posted its biggest two-day rally since June on forecasts for higher interest rates.

European Central Bank President Jean-Claude Trichet said today that he expects Greece's government to take the tough decisions required to address its fiscal problems. Greece has been under pressure to address its fiscal deficit after ratings firm Fitch downgraded its sovereign debt earlier this week. The Greek government announced that analysts from Moody's rating agency will be in Athens on Monday for an inspection visit.

Trichet also said today that large imbalances between countries running large current account surpluses and deficits pose a threat to the global recovery if they're not addressed. Trichet said, “If you don't correct these structural imbalances then you have a recipe for new problems ... and big challenges."

Legendary investor Jim Rogers, who has just gone long the USD, is explaining his extraordinary new trade. Among other things, he anticipates a major currency crisis in the next year or two, and he's still extremely bullish on gold. Rogers said he has started to accumulate more USDs recently. He’s still negative on the long-term fundamentals for the USD, noting "the U.S. is the largest debtor nation in the history of the world."

Next week will see quite a few important economic reports released in the U.S.; among them, the Producer Price Index, Empire State Manufacturing Survey, Capacity Utilization, Industrial Production, Building Permits, Housing Starts, the Consumer Price Index, Leading Indicators and the Philadelphia Fed Index.

On the earnings calendar next week watch for Adobe Systems, Best Buy, Hovnanian Enterprises, Joy Global, Apogee Enterprises, Actuant, Darden Restaurants, FedEx, General Mills, Nike, Pier 1 Imports, Rite Aid, and Winnebago.

Happy trading,

James Dicks