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Merry Christmas?
By Mike Conlon | December 23, 2010
Heading into tomorrow’s shortened session due to the Christmas holiday, worse than expected economic data is getting a reprieve. US economic data is mixed, and I think we are seeing a case of “it could be worse” type sentiment.
Overnight, New Zealand reported a GDP contraction of .2% vs. an expectation of a gain of .1%, bringing the YoY figure down to 1.5% from an expected 1.8%. The market had clearly set itself up for a “miss” but was mildly relieved when the number was not as bad as expected, as evidenced by a higher-trading Kiwi.
In Canada, a monthly reading of GDP showed a gain of .2%, which was slightly lower than the expected .3%, which working in tandem with mixed US economic data is helping the Loonie gain strength.
In the UK, a BOE policy-maker came out and stated that he thought the UK could see a GDP contraction at some point next year and, you guessed it, the pound is trading higher!
Lastly, US economic data showed that we lost another 420K jobs, but those who have jobs have seen their incomes rise .3% which was slightly better than expectations, while slightly spending less than expected (.4% vs. an expected .5%). Personal consumption data came in lower than expected, as did Durable Goods Orders.
Yet the markets are trading somewhat flat, except for gold which is off 1%.
In the forex market:
Aussie (AUD): The Aussie is mostly higher but for Japanese yen strength. The Australian economy is rocking and even though it is a “risk” currency, it is also seemingly a good place to hide out over the holiday weekend.
Kiwi (NZD): The Kiwi is higher across the board after showing an economic contraction last quarter. This apparently was expected by those in the know and recent selling has been reversed in a case of “sell the rumor, buy the news”.
Loonie (CAD): The Loonie is mostly lower as GDP figures showed slowing growth, continuing the theme from yesterday. Nevertheless, there are no major issues specific to Canada that would make the Loonie any less attractive. Yes the global economy is starting to slow. The Loonie is likely range-bound to finish the year. (Click chart to enlarge)
Euro (EUR): The Euro is lower as the debt crisis is back to the forefront as there is little other news to hide it. The Irish government just took control of Ireland’s largest lender and there is some speculation that there may be increased competition among the worst debt-ridden Euro zone nations to get their debt funded.
Pound (GBP): The Pound is mixed despite comments that the UK could see a GDP contraction next year. Recent debilitating weather in the UK is likely to be blamed if retail sales come in worse than expected for the month.
Dollar (USD): The Dollar would be lower were it not for Euro weakness. Economic data is not encouraging, nor does it send holder’s of it fleeing. This is all becoming part of the “new normal”, where weekly job losses of 420K are not only expected but also of minimal importance.
Yen (JPY): The yen is strengthening for the second day in a row as Asian stocks were lower overnight, and a continuation of bond selling from yesterday is driving yields. However, volume was very light so this could be an aberration as earlier this morning, USD/JPY traded down to the 38.2% retracement level I identified yesterday. (Click chart to enlarge)
Holiday volume is light today yet there are some moves taking place. Perhaps participants are in the “holiday spirit” and are not punishing those currencies with worse than expected economic data.
It also looks like there are some year-end ranges being established, as those who need to dress their windows have likely done so already. This is the time of year when I struggle to find fundamental reasons as to why things are occurring and it really takes a lot less to move markets.
Next week is also a holiday-shortened week, so it will be interesting to see if it mirrors this week’s market action. Merry Christmas to all who celebrate the holiday!
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