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Wednesday December 20, 2006 - 11:48:38 GMT
Mellon Bank Foreign Exchange - https://fx.mellon.com/

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Forex: Mellon FX Daily - U.S. Edition

Key Points
• EUR-USD price action suggests correction is over for now – upside testing should follow.
• US mortgage applications could be significant for the USD today.
• JPY vulnerability shows itself again.
• NZD facing up to test of 0.70 after lower than expected current account deficit.
• EUR-SEK downside would open up below 9.00.
• NZ GDP, Japanese trade/activity data and BoE’s King speech feature tonight.

Market Outlook

A decent stabilisation in EUR-USD yesterday, suggesting that the correction is over for now. Upside should now be tested although the Dec 12 high of 1.3290 needs to break to expose the recent high at 1.3370. Back below 1.3185 would take the edge off the recent move. Below 1.3120 would suggest a renewed attack on the recent low at 1.3053.

Yesterday’s stronger than expected German IFO has bolstered the EUR’s credentials and Trichet repeat the reasonably hawkish message of the recent ECB meeting in his appearance this morning in front of the EU Parliament’s Economic and Monetary Affairs Committee. The market is also likely to look favourably on what Friday’s US core PCE price index should bring. Yesterday’s US core PPI data should be ignored as the large swings in the data over the past four months are purely due to gross volatility in motor vehicle prices. One potential USD positive is today’s data on mortgage applications, which have been improving significantly in recent weeks. It seems unlikely that the recent pace of improvement will be maintained for another week, but if it is it would add weight to the notion of some stabilisation in the housing market, the latter being significant for sentiment about domestic demand in 2007.

While the USD has been losing ground against most currencies over the past 24 hours, this has not happened against the JPY, reflecting the latter’s renewed vulnerability after yesterday’s BoJ
outcome, which offered no real threat of a rate hike in January. The move in EUR-JPY above the recent high at 155.57 was another blow for the JPY. Further advances may be seen in the short-term and key on USD-JPY is the 118.60 level.

The NZD rallied following a lower than expected current account deficit for Q3. This number was always going to be a test for the NZD, as it was a potential threat to the positive cyclical developments seen recently. With this potential pitfall having been overcome there is now some upside risk on the NZD. However, it is difficult to buy it here (0.6975 currently), as it is not clear whether it will manage to scale key resistance at 0.70 in the near-term. Also watch out for any comments from NZ officials who may be fearful about the implications if 0.70 gives way. The upside risk for the NZD also comes from its role as a high yielding opposite to the JPY. NZD-JPY has roared to fresh nine-year highs over the past 24 hours. NZ Q3 GDP is due tonight.

Also keep an eye on EUR-SEK. It has been consolidating in recent weeks after the break below 9.12 and the ability to sustain this move has been encouraging. A fresh downside test is now happening and a break and close below 9.00 would open up some downside going into year-end. As well as the favourable cyclical backdrop for the SEK it is also underpinned by a heavy privatisation schedule, where foreign investors look like being actively welcomed.

UK mortgage lending and money data remained fairly strong and there was a very large uplift in the balance of retailers (+25%) reporting higher y/y sales volumes in December according to the CBI survey. However, the expectations balance for January was only +4. The strength of the December number is line with anecdotal evidence in recent weeks about a pick-up in retail spending after a fairly miserable November, but it also perhaps shows how volatile the data is around this time of the year. What will happen in January for example? The data is certainly encouraging in relation to how things were looking a few weeks back, but the market will most likely reserve judgement on the overall state of consumer spending until the New Year. The December MPC minutes showed slightly differing views on the risks to growth and inflation going forward, although after having hiked rates in November the MPC was essentially in wait and see mode. Pay settlements were identified as key in the months ahead.

Day Ahead
US – a feature of recent weeks in the US has been the recovery seen in mortgage applications and this has been seen as a possible sign of better times ahead for the housing market. Latest data will be examined to see whether the recovery has extended any further.

Japan – trade data (due this evening) will show what is happening to exports, which have flattened out a little over the past couple of months. Exports have been one of the few strong points in the data during 2006 and any sign of weakness would be a further negative development for Japanese economic prospects as well as BoJ policy expectations. The all-industry activity index is also out and a sharp rebound is likely in line with that seen in the tertiary index (already released).

Diary
Data/event EDT Consensus*

US Mortgage apps – purchases w/w 07.00 +8.7% last
CA Wholesales sales (Oct) m/m 08.30 0.0%
NZ GDP (Q3) q/q 16.45 +0.5%
JP Trade balance (Nov, sa) 18.50 ¥658bn
JP All-industry index (Nov) m/m 18.50 +1.6%
GB BoE governor King speaks in Aus 21.15

Latest data Actual Consensus*
NZ Current account (Q3) -NZ$4.6bn -NZ$5.1bn
US ABC consumer conf (w/e Dec 17) +1 +1 last
GB MPC minutes (Dec 6-7 meeting) 9-0 9-0
GB M4 lending (Nov) y/y +14.4% +13.4%
GB M4 (Nov) y/y +13.1% +13.8%
GB BBA mortgage lending (Nov) +£6.5bn +£5.6bn
GB PSNCR (Nov) +£7.1bn +£8.7bn
ZA CPI (Nov) y/y +5.4% +5.8%
ZA CPIX (Nov) y/y +5.0% +5.3%
GB CBI retail trades survey (Dec) +25 -9 last
* Consensus unless stated

2005, Mellon Financial Corporation Note: Although obtained from sources believed by us to be reliable, Mellon Financial Corporation and its affiliates cannot guarantee the accuracy or completeness of the information upon which this report is based. This report does not purport to disclose the risks or benefits of entering into particular transactions and should not be construed as advice in any specific instance. The views in this report constitute our judgement as of this date and are subject to change without notice.
Ian Gunner 44 20 7163 5996 06.40 EDT Monday May 31 2005

 

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Amazing Trader EVENT RISK Calendar:

Mon 18 Dec
10:00 EZ- final HICP
Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
13:30 US- Current Account
Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude
Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
13:30 US- GDP
Fri 22 Dec
09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
17:00 US- early Closes
Mon 25 Dec
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  • POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.


  • POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
  • POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity

  • POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
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