[B]Talking Points
• Yen: Back above 112.50 as weak Tankan sinks yen
• Pound: Below 2.0300 once again on Barker comments
• Euro: Sold in London as stops triggered
• US Dollar: CPI on tap[/B]
The surprisingly strong US Retail Sales number which beat expectations by nearly twice the projected amount, continued to reverberate throughout the currency markets tonight helping to underpin a broad based dollar rally with the unit gaining against yen, the euro and the pound. The better than forecast November numbers assuaged market fears that the sub-prime fiasco and the concomitant housing fallout would create a severe contraction in consumption and possibly trigger an economic recession in US.
We’ve long argued that the US consumer is far more affected by labor market demand and wage growth rather than asset deflation and as such was less likely to curb spending significantly given the relatively healthy employment background. Yesterday’s Retail Sales produced the right catalyst for a greenback rally which has been woefully oversold and today’s price action, given the lack of overnight economic news suggests profit taking from some long term accounts and massive liquidation from late euro longs.
The dollar rally was also aided by the weak Tankan numbers out of Japan. The Tankan survey printed at its worst level in 2 years, as higher energy costs and an appreciating currency weighed on the country’s producers. The Tankan results only confirm the argument of yen bears that BOJ is unlikely to tighten interest rate anytime soon sending USDJPY 113.00 - its best performance in a month.
Today, attention in the North American session will turn to US CPI data which is expected to print at 4.1%. Given yesterday’s hotter than forecast PPI readings an upside surprise could well be in order. With EURUSD having breached the psychologically important 1.4500 level in early London trade, further dollar strength may be due as the market moves into the week-end.
