The Forex Daily Digest – December 15, 2009

The USD rose to a two- month high against the EUR on the possibility that improving economic data in the U.S. will encourage the Federal Reserve to indicate an exit from policies intended to fight the recession. The U.S. dollar increased against 15 of its 16 major counterparts as futures indicated a 49.5 percent chance that the Fed, which began two days of policy meetings today, will raise its key rate by at least a quarter-percentage point by June, from near zero.

Canada’s dollar fell, trading at almost a two-week low, as global equities declined and the U.S. currency rose against most major counterparts. The CAD declined 0.6 percent this month as crude oil, the nation’s biggest export, fell for nine straight days. Meantime, Canada’s index of leading economic indicators rose almost twice as fast as economists predicted in November, led by gains in housing and manufacturing. The gauge increased 1.3 percent.

According to BlueGold Capital Management, China may allow the yuan to appreciate by April of next year as exports recover, inflation creeps up and international criticism escalates. Chinese policymakers have held currency levels at about 6.83 per dollar since July 2008 to assist Chinese exports to endure the global recession after allowing it to increase 21 percent against the USD during the last three years.

The EUR may increase for a second day against the USD after Abu Dhabi pledged to bail out Dubai World; easing concern that Europe’s largest banks will be forced to write down loans to the state-owned holding company. And the JPY advanced against the USD for the first time in three days as the Tankan index of sentiment among big makers of products including cars and electronics climbed 9 points to minus 24 in December.

Gulf Arab nations established a monetary pact, thus moving a step closer toward the goal of a single regional currency and increased integration between the mainly oil-rich states. The announcement by Kuwait's finance minister came as leaders from the six-member Gulf Cooperation Council nations were completing a two-day summit in which they launched a regional electricity project and discussed, among other issues, Iran's nuclear program and the war in Yemen.

In economic news today, higher energy costs pushed the U.S. producer price index to 1.8% in November, a rate that exceeded analysts' expectations. Economists expected an increase of 1.0% for the month. Core producer prices, excluding volatile food and energy, rose 0.5%, also above forecasts and the largest increase since October 2008.

It’s going to be a very busy day tomorrow on the economic calendar. Watch for Building Permits, Housing Starts, the Consumer Price Index, Current Account Balance, the Crude Inventories report for the week and the FOMC Rate Decision at 2:15 pm (ET).

Scheduled earnings on Wednesday include Apogee Enterprises, China Gas Holdings, Joy Global, Nordson, Hovnanian Enterprises and the Zodiac Group.

Happy trading,

James Dicks