The first round of U.S. economic data this morning helped to support the rally in risk currencies. The EUR/USD has finally taken out the key 1.50 level which should not be surprising for our readers since we said throughout the week that a break is imminent. We continue to believe that the U.S. dollar could fall another 5 to 7 percent (more like 4 to 6 percent at this point) over the next few months.
The big surprise this morning was the sharp decline in jobless claims. For the week of Nov 21st, 466k Americans filed for unemployment benefits, the lowest level since Sept 2008. Continuing claims also dropped to the lowest since February which signals that job losses continue to moderate. Yet there are still alot of vulnerabilities in the U.S. labor market. Earlier this month, companies like AOL, Sprint and Electronic Arts continued to dole out pink slips. If Black Friday and the holiday shopping season as a whole proves to be weak, more retailers may be forced to close stores, which could translate into even more layoffs. Part of the improvement in continuing claims is undoubtedly tied to benefits expiring. Also, for the swelling population of unemployed, finding new work remains very difficult. The takeaway is that jobless claims have improved but traders should not get overly excited by the latest numbers.
The personal income, personal spending and core PCE figures all beat expectations which is line with the stronger retail sales figures earlier this month. Durable goods dropped 0.6 percent and if you exclude orders for transportation products, they dropped by a larger 1.3 percent. Orders for defense, computer and electronic products took the biggest hit but even though the data was very weak, the negative sentiment was offset by the 1 percent upward revision to the September data. Durable goods orders can also be very volatile and therefore the market has downplayed its significance.
The final University of Michigan consumer sentiment report for the month of November is due for release at 10am NY time along with new home sales. Unless there is a big surprise, we do not expect these reports to dent the risk appetite in the foreign exchange market. U.S. equities should open higher and support the rally in the EUR/USD.
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