JPY Corporate Services Rises 0.3%
EUR GE GFK sentiment rises
CHF UBS Consumption Indicator solid
Durables on tap
Basking in the afterglow of the relatively dovish FOMC report both the euro and the yen moved higher in Asian and <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />European trade today as consensus opinion in the FX market coalesced around the idea that the Fed has actually stopped rather than merely paused the interest rate tightening cycle. Both the euro and the yen were also supported by strong fundamental results in the overnight releases. In Japan the Corporate Services price index rose 0.3% while the prior month was revised higher to 0.4%. The index registered the second consecutive month of gains demonstrating that the last vestiges of deflation have been wrung out of the Japanese economy. As pricing power returns to the Japanese service sector the BoJ will be less hesitant to ratchet rates higher, although strong institutional resistance to tighter monetary policy remains in Japan. Comments overnight by Finance Minister Omi helped temper the downward move in USD/JPY as he stated that he favored keeping rates low to further stimulate the economic recovery.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
In Germany the GFK Consumer sentiment survey printed at 9.2 versus 8.8 eyed, as the pick up in economic activity is beginning to translate into better confidence for consumers of Euro-zones most important member. Meanwhile ECB President Trichet maintained his hawkish rhetoric by stating that upside risk was confirmed by latest monetary data. With 3.5% ECB rates nearly guaranteed, some traders are beginning to price in the possibility of a move to 3.75% by years end which should lend further support to the euro as the single currency methodically narrows its interest rate differential with the dollar.
In US today focus turns to the Durable Goods report which as we noted in our weekly- may well be the most important release of the week. A rebound in demand for Durables represents the last viable argument of dollar bulls that the US economy is indeed on the verge of a turn upward after soft Q3 performance. As many analysts have recently pointed out, the sweater retailers have weathered the slowdown reasonably well, but the true impact of the contraction in housing will be felt in Durables, as US consumers formerly flush with Home Equity extractions will no longer have an easy source of capital to purchase, cars, flat panel TVs and major household appliances. Therefore, if todays report surprises to the downside it may well be the nail in the coffin to the dollar long position, as it will incontrovertibly confirm a slowdown in US economy.
