Forex Investment and Currency Trading

There is really not much doing at all so far today. USD/CAD has traded in a tight range, with the CAD ignoring weaker oil prices at least so far today. Canadian GDP data for October are released this morning while US data reports include personal spending and durable good data for November as well as weekly jobless claims.

We are seeing a quiet hand off from Europe, with most continental equity exchanges already closed and few market participants sticking around for the US data reports even if there is the risk of some quite weak data from the jobless claims data. Yesterday’s US 5-year auction was a little “sloppy”, with a softish bid/cover ration of 2.06 relative to recent auctions and a little slippage in the indirect bid that is seen as an indication of foreign central bank demand. Market remains concerned by the prospect of the US economy having to shift a huge amount of debt next year to finance the various economic and financial support initiatives at a time when sovereign investors either have less surplus savings to invest or are starting to ponder –openly – just how much more US debt they want to purchase (ignoring the rather lofty price of US Treasury debt at the moment). Analysts continue to look for generalised USD weakness next year relative to the major currencies. For today, however, the session is likely to remain relatively quiet; EUR/USD has traded in a sideways range for the past few sessions and that pattern seems likely to remain intact for a little longer. USD’s powers of recovery is expected to remain relatively limited as the impact of the Fed’s balance sheet expansion and move to non-conventional monetary policy weigh against a significant rebound.

While yesterday’s US housing data suggest that this vital part of the economy remains profoundly weak, there are some signs that the authorities’ attempts to massage mortgage rates lower is starting to have an impact on mortgage application activity; there have been some big swings in the weekly MBA mortgage applications data recently but this morning’s 48% rise in applications suggests that the housing market may still have a pulse.

Data

• Yesterday’s US housing data was extremely soft. New home sales fell 2.9% in November, which was a slightly smaller decline than expected, but thanks to downward revisions to prior months, the level of sales was still worse than expected at only 407K. After seeing some stability for the last several months, existing sales started sliding again, falling by 8.6% in
  November. This pushed the months supply of homes for sale back above 11 months for the first time since June, nearly matching the inventory level for new homes. Looking at the price data, resale home prices continued to fall, as the NAR estimates the 45% of sales are due to foreclosures, and are now down more than 21% from their peak in mid-2006. However, new home prices picked up a bit in November and are down “only” about 16% from their peak levels. Home builders may have to take a page from the firesale resale home prices if they ever hope to clear out their inventory of completed homes for sales, which has shown no signs of pulling back. Hopefully now that the 30-year mortgage rate is at a five and a half year low (according to this morning’s weekly MBA data), this will help to spur home sales in December. We’ve already
  seen a major rise in refinancing applications since mortgage rates started to come down a couple of weeks ago.
• Today in the US we get another big spurt of data with the income and spending numbers and the durable goods report for November. The key metric in the income and spending report
  will be real spending, since that will give us a better idea of just how big of a drag PCE will be on Q4 GDP. While retail sales exautos and gasoline posted a surprising 0.3% gain in November,
  a lot of analysts were sceptical, and suspect that either there was a problem with the seasonal factors due to the timing of Thanksgiving, and that there will be some payback in December, or that the number will eventually be revised downward. A second key figure to watch will be the core PCE deflator, as a downside surprise could re-ignite deflation fears, weighing on the USD. With the durable goods report markets are expecting to see a 3.0% M/M fall. And as usual, we’ll be watching core capital goods orders as a gauge of business investment. We’ve seen three consecutive 2% or more declines, and another similar-sized fall is likely in the cards for November.