According to the latest CFCT Commitment of traders data short positions in the US dollar increased by factor of six last week to 67,500 rising to their highest level in a month. The positioning suggests that speculators are anticipating further dollar weakness in the week ahead, but their short bias may be subject to a squeeze if risk aversion flows reappear.
With the exception of Australia which reported very strong labor data last week, economic new from the rest of G-20 block was generally disappointing. In UK Manufacturing and Industrial Production reports missed expecations, in Eurozone the Trade Balance printed weaker than expected as higher currency rates finally took their toll on trade and in US the Retail Sales numbers shocked to the downside at -0.3% versus 0.4%. Meanwhile equities appear to have stalled at the 10,700 level for the DJIA despite strong earnings data from financials and high tech sectors as the index tumbled more than 100 points on Friday.
This week the economic calendar is relatively light once again, but there are several key reports that could impact the market. In UK the claimant count and retail sales numbers will be key to setting the tone in the pound. In EU the flash PMI data for January will offer the latest evidence of strength or weakness of the recovery in the 16 member union and in US the weekly jobless numbers could be key in determining whether the improvement in labor markets has ended. If the economic news this week surprises to the downside triggering further profit taking in equities, the greenback could see a rally on safe haven flows as specs are forced to unwind their freshly laid dollar shorts.
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Sorry guys, the video recording software has started playing up...still trying to sort it out!Heres a chart with what I am looking for Monday-Tuesday time period really.
Draw that channel on your charts, it may be VERY significant.
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By InTheMoneyStocks.com on January 15th, 2010 3:56pm Eastern Time
The key support for AAPL is $203 - $202 in the near term on the daily. If that breaks, $190 is the next stop.
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By InTheMoneyStocks.com on January 15th, 2010 12:57pm Eastern Time
The markets have fallen dramatically today. This may be the biggest down day in over a month on the DOW. The key to this sell off was noting the double top hit at $115.14 yesterday on the SPY. Chief Market Strategists had said this would be the top going back to 01/11/10 when this level was first hit. Sure enough, a beautiful double top nailed, hard selling today. In the Nightly Technical Analysis Video, Chief Market Strategist had even noted that with the high probability of a sell off today, we would have an M pattern. Note the chart below. Premium subscribers in the Intra Day Stock Chat and Research Center Video are enjoying the profits from being on the right side of the trade again.
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U.S. DOLLAR: RETAIL SALES COULD PROVIDE HOPE
Given the big surprise in the U.S. retail sales report, we would have expected a more dramatic reaction in the U.S. dollar. The greenback sold off against the most of the major currencies but still managed to end the day higher against the euro and Swiss Franc. Whenever it comes to trading U.S. data, the most logical reaction to the economic report tends to be in USD/JPY and today was no exception. Thirty minutes after the retail sales report was released, USD/JPY fell over 60 pips and by noontime in NY and the London close, the currency pair was down close to 100 pips from its prerelease levels. The reaction in the EUR/USD on the other hand was rather muted considering that ECB President Trichet delivered his press conference minutes after the number. Cautious comments from the central bank head tempered the slide in the dollar and left the EUR/USD basically unchanged on the day. There has been a lot of confusion about how consumer spending could have been so weak when everyone was reporting strong holiday sales. However unless there is a logical explanation that suggests that the drop off in spending was distorted, there should be a lasting impact on the dollar.
Risk Appetite Not Entirely Damaged
However based upon the rally in equities, the lack of reaction in gold, and the relatively small daily change in the dollar, risk appetite was not entirely damaged by the weak retail sales report. The price action in the financial markets suggests that investors want to be optimistic and believe that brighter times lie ahead in 2010. As a result, they are looking for silver linings and they have found it in the comfort of the knowledge that the weaker consumer spending report will keep monetary policy easy for a longer period of time and in turn, provide greater support for the U.S. recovery. Also, with the upward revision to the November number, consumer spending will contribute positively to GDP growth in the fourth quarter. Therefore stocks have rallied on the prospect that tighter monetary policy will not be delivered anytime soon and as long as stocks are rallying. The rally in stocks also suggests that the data was not weak enough to prompt traders to rush into the safety of U.S. dollars on the fear that if the U.S. economy is not recovering, the rest of the world will not grow as well – this is less true nowadays with China leading the recovery. This afternoon earnings from Intel are due for release and given the upbeat outlook from the company, earnings are expected to be strong which could offset some of the negative sentiment from today’s reports.
Consumer Spending Contracts During Holiday Shopping Season
Weak consumer spending coupled with the disappointing labor market numbers last week guarantee almost no action by the Federal Reserve before the summer. Given the reports of more consumers in the stores, we have to believe the drop in retail sales came from deep discounting. Consumer spending contracted by 0.3 percent in December and excluding auto purchases sales fell 0.2 percent. Based upon these numbers, the strong holiday shopping reports that we have heard from retailers appear to be a fallacy even though the November figures were revised higher. A closer look at the data reveals that demand for electronics, general merchandise, clothing and motor vehicle parts fell the most and with the need to spend money on holiday purchases, consumers also ate out less. The retail sales report was the last opportunity for some optimism in the dollar. We expect the Federal Reserve to react to the weak consumer spending report by adopting a tinge of dovishness in their monetary policy statement on January 28th. Meanwhile jobless claims and import prices also failed to help the dollar. Claims rose from 433k to 444k while import prices remained unchanged. Traders should not be encouraged by the drop in continuing claims from 4.807 million to 4.596 million because it reflects the expiration of unemployment benefits. Overall, the weak economic reports should push the dollar lower going into the FOMC meeting later this month.
Friday Data Preview
If price pressures were really to blame for the decline in sales, then we should see a drop in Friday’s consumer price report. Although gas prices increased significantly in January, the prices at the pump actually decreased in the month of December. Aside from CPI, the Empire State manufacturing survey, industrial production and the University of Michigan Consumer spending report is due for release tomorrow. The rise in the IBD Consumer Confidence index report suggests that confidence may have improved in January.
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