US Dollar, Japanese Yen Down as US Holiday Spending Adds to Signs of Global Growth

US Dollar, Japanese Yen Down as US Holiday Spending Adds to Signs of Global Growth
The US dollar and Japanese yen dipped lower across the majors on Monday as optimism on global growth helped to spur demand for riskier assets, such as equities and the commodity dollars. According to MasterCard Advisors’ SpendingPulse, US retail sales rose an estimated 3.6 percent between November 1 and December 24 as consumers ramped up their purchases the week before Christmas and online. Additionally, the Dallas Fed manufacturing outlook survey showed improving sentiment during December, as the index rose to two-year high of 3.8 from 0.3. A breakdown of the report shows that new orders and prices are on the rise, but the production component eased back, suggesting producers are trying to limit inventory buildup.

Looking ahead to Tuesday, the Conference Board's measure of consumer confidence is expected to rise for a third straight month in December to 53.0 from 49.5. Other indicators of consumer sentiment, such as the University of Michigan's index, bode well for this upcoming release as the report showed an improvement to 72.5 in December from 67.4. All told, further increases would add to evidence that spending rose through the end of December as consumers shopped ahead of the holidays.  Additionally, the S&P/Case-Shiller home price index is expected to rise for a sixth straight month in October to a nine-month high of 147.00 from 146.51, suggesting that the government's efforts to stabilize the housing market through tax incentives for buyers has been working. Indeed, last week's release of NAR existing home sales has indicated a steady increase demand, though sales of new homes have remained volatile.

Overall, it’s important to keep in mind that volumes will remain low through the rest of the week, which is likely to translate into range-bound price action until traders return next week. When it comes to the JPY crosses, though, last week’s break higher in the S&P 500 signals increased bullish potential.

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British Pound Up After UK House Prices Rise for Fifth Month
The British pound gained slightly after the UK’s Hometrack house price index rose for a fifth straight month in December. Indeed, this monthly increase which helped to push the annual rate up to a nineteen month high of -1.9 percent from -2.9 percent and suggests that housing market conditions are improving. Looking ahead to Tuesday, the Bank of England’s report on housing equity withdrawals is expected to show that homeowners paid 6.4 billion pounds, on net, toward their mortgages during Q3. This would mark the sixth straight quarter in which homeowners avoided home equity loans and simply paid down debt, adding to evidence that demand for credit is just as weak as supply. Though this report isn’t likely to have a big impact on the British pound, negative results may signal that the central bank will remain open to expanding their Asset Purchase Facility (APF) further in February 2010.

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Euro Mostly Lower as Majors Consolidate - German CPI on Tuesday
The euro was only able to gain against the US dollar and Japanese yen on Monday, but the moves were negligible as the majors were simply consolidating last week’s moves. Last week we saw that German import prices rose a bit more than expected at a rate of 0.4 percent during the month of November, which helped to push the annual rate to -5.0 percent from -8.1 percent. The shift suggested that consumer prices in Germany may have risen through the end of the year, but with most of the import cost increases coming from energy imports, we’re likely to see that any signs of inflation will be driven primarily by volatile commodities. We may see signs of this on Tuesday, when the preliminary release of the German consumer price index (CPI) is due to be announced.

German CPI is projected to have jumped 0.6 percent during December, the largest increase since February, which could push the annual rate up to 0.7 percent from 0.4 percent. Nevertheless, with inflation well below the European Central Bank’s 2 percent target, the news isn’t likely to impact the euro. Indeed, until the start of 2010, EURUSD isn’t likely to see significant market movement as trading volumes tend to be low ahead of the holidays. Resistance for the pair looms above at 1.4417 and 1.4511 (12/22 high and the R3 daily pivot), while key support sits at 1.4202 (200 SMA).

Related: Discuss the Euro in the DailyFX Forum,

Commodity Dollars Dominate After Crude Oil Hits Five-Week High
The commodity dollars – including the Canadian dollar, Australian dollar, and New Zealand dollar – dominated at the start of the week as optimism on global growth prospects pushed crude oil to a five-week high of $79.12/bbl on an intraday basis. The shifts helped push USDCAD to the bottom of its two-month range at 1.0400/20, led NZDUSD to bounce further within a falling wedge formation, and drove AUDUSD up for a test of its 100 SMA at 0.8870. That said, these bullish moves may not have a momentum to break through immediate barriers, as low liquidity could simply contribute to range-bound trade for the rest of the week.

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