Yen And Dollar Gain On Global Recession Fears, US Trade Data Surprises On Upside

AUD/JPY - Carry Trade Unwinds as Global Stocks Continue Sell Off

The Japanese economy released data today showing that the Japanese current account surplus shrank almost 65% on the year as a result of falling exports. Corporate bankruptcies rose to a record high, and Japanese bank lending climbed to a record as companies are unable to issue corporate bonds to raise cash in the money markets. The combination of news sent the Nikkei 225 down almost 4.5%, increasing risk aversion in the Asian session. The Aussie-Yen, always sensitive to carry trade sentiments, fell again today, the 5th session in a row it has done so. Today's fall amounted to 170 pips, bringing the pair to the 59 level, the lowest its been in about a month. The Yen also advanced against the Euro and Pound.

UK BRC Retail Sales Down 3.3% on the Year in December

Turning to the UK, we saw more poor news out of the economy. The BRC retail sales monitor, which measures the annual pace of sales, was down 3.3% in December. That's the worst December since records began 14 years ago.

UK Trade Deficit Widens to Record Amount

Next, the trade in goods balance widened sharply in November, increasing to 8.3 billion pounds, following a deficit of 7.7 billion pounds in October. That is the largest deficit since records began in 1697. Exports were down 6%, reflecting the weakness in global trade. The Conference Board leading index was down 1% in November, following a 1.7% decline in October.

UK Housing Shows Less Houses Falling in Price, but Price Declines Sharper

In two housing sector releases, the RICS house price balance showed that the net balance of surveyors reporting falling rather than rising prices improved from 75.8 to 73.5. This is the least negative level since last February. However, houses that are seeing price declines, are seeing an acceleration of those declines. On the year, a government measure showed prices down 8.6% in November compared to a year ago.

GBP/USD - Pound Drops on Data

The weak sales and trade news pressured the Pound which extended its losses against the Dollar that started in yesterday's session. The Pound-Dollar pair slid 340 pips today, and is now more than 800 pips off resistance at 1.5350 set on Friday. This week's decline has now completely cut down the gains seen last week in the pair. The Pound also had a second day of losses against the Euro.

GER Wholesale Prices Down A Record Amoune in Annual Terms

In Germany, wholesale prices fell by 3.3% on the year in December, the sharpest drop recorded since records began in March 1999. On the month prices retreated 3% following a drop of 3.3% in November. The reduction in prices can help spur spending by consumers as was recently seen in retail sales figures from Germany and the EU, and also give the ECB more leeway in cutting interest rates to try and spur the economy.

US Trade Deficit Shrinkgs by Largest in 12 Years

In the US, the trade deficit contracted by the most in 12 years during November as the month saw oil prices tumble in response to the widening global slowdown. The deficit narrowed to $40.4 billion, a much smaller amount than predicted by economists. Imports were down a record 12% compared to a drop of 5.8% in exports. The fact that the drop in imports outpaced exports, helped trim the deficit.

EUR/USD - Euro Falls for 3rd Straight Session vs Greenback

The Euro-Dollar fell in favor of the greenback today for the 3rd straight session as the better than expected trade data mixed with a sense of traders seeking some safe haven among the deepening global recession. The pair fell below 1.32 for the first time in 4 weeks. In a speech today Bernanke said a fiscal stimulus plan alone will not be able to bring the US economy out of recession. He called on the government to buy or guarantee banks' tainted assets as a way to stabilize and strengthen the financial system.

NZD/JPY - Kiwi Slides Hard on Global Recession, Risk Aversion

A victim of the deepening global recession fears was the Kiwi. In a look at the US Dollar-Japanese Yen we see a steep 250 pip drop in today's session, which brought the pair back to levels seen in December 13th. Weak global growth will impact demand for commodities, thereby adversely affecting commodity currencies like the Aussie and Kiwi.

CAN Trade Surplus Dwindles

In a final fundamental release today, Canada's trade surplus shrank to C$1.3 billion in November, from a downwardly revised C$2.3 billion in October. Exports slid for the fourth month in a row, dropping 6.8%. Exports to the US were down an even larger amount.

USD/CAD - Loonie Coming Up Against Resistance

The US Dollar-Canadian Dollar pair rose to 1.2330 in today's trading which comes close to running up against resistance seen through out late December, and is the culmination of a more than 500 pip rise in the last 3 sessions.

Upcoming Releases

Taking a look at our upcoming releases, we see building approvals data from New Zealand and home loans from Australia. Overnight, Japan posts its machinery tool orders, and the Euro-zone releases data on industrial production.
Tomorrow, the US will release data on retail sales, import prices and business inventories.
Hans Nilsson
Capital Market Services, L.L.C.
www.cmsfx.com