As we head into the end of the year, the U.S. dollar continued to give up some its recent gains. By now, most corporations, hedge funds and institutional investors have already closed their books and the few remaining market participants are mostly interested in selling dollars and repatriating their funds to window dress their balance sheets. As a result, the dollar is trading lower against all of the major currencies except for the Japanese Yen. This morning's economic reports were in line with expectations and provides no threat to the U.S. dollar. If anything, it has helped the dollar recover some earlier losses. Overall the dollar's losses against the euro are very modest and any action can only be found in the Australian and New Zealand dollars, both of which have climbed more than 1.25 percent against the greenback. Unfortunately there has been no news from either country and nothing outside of model buying and fixing demand to explain the breakout. In this context, the rally in the AUD/USD and NZD/USD are perfect examples of the type of volatility that low volume and thin trading conditions can create. Equities also reached new yearly highs at the open and if the current pace of gains continue, stocks could actually end the year at their highs.
According to the latest U.S. economic reports, house prices rose for the fifth month in a row in the month of October. The S&P/CaseShiller home-price index increased 0.4 percent from the previous month on a seasonally adjusted basis, bringing the annualized drop in house prices to 7.3 percent, the smallest year over year decline in 12 months. The data indicates that low mortgage rates and the tax credit continues to support the housing market. Meanwhile consumer confidence rose from an upwardly revised 50.6 to 52.9 in the month of December. Although consumers were less optimistic about the present situation, they grew more optimistic about the outlook for economy for the second month in a row. This increased optimism is in line with the improvements that we have seen in the labor market and the increase in holiday spending. Given that this morning's reports failed to ignite any fireworks, we expect quiet trading in the forex markets for the rest of the day.
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