As I had anticipated The Durable Goods figures were very weak and the dollar has taken a pretty through beating as a result from it. With A slue of Japanese data out tonight starting at 6:15 pm EST and continuing untill 10:30 it should prove to be an active Asian session. I expect the overall thrust of the data to be Yen supportive and help USD/JPY reach 113 with a break of the figure tomorrow afternoon. As mentioned in prior analysis the falling stock market correlates strongly to a more valuable Yen. I expect the Japanese jobless rate to remain low and industrial production to beat expectations
buoyed by demand from Japan’s largest trading partner, China. Meanwhile CPI will interesting since even the BOJ is now speculating that increased production costs will be evident in the CPI figures as firms pass on the price increases in commodities to the consumer. Retail sales remains the great unknown in my mind because even though corporate profits are high and production is strong and incomes are rising Japanese consumers have not been spending money. The best reason for this seems to be that the Japanese are more inclined to save the extra money than the average U.S. consumer would be. This figure could be the most disappointing out of Japan tonight but if it does come out above expectations of 0% month on Month and 1% year on year expect a flurry of yen buying and overall positive yen sentiment regardless. Meanwhile another monthly decrease in house prices in England which will be released at 2 am seems very likely and would help establish a clear downward trend in housing in England. This is not bullish for the Pound since the key reason for the rate hikes by the BOE has been directly related to house price growth. Although the pound like everything else is Rallying against the dollar today I would be surprised to see it crack $2 overnight. Meanwhile German CPI is to be released at 10:30 am but I would suggest the figure will be below expectations since the inflation in commodities which are priced in dollars is being partially absorbed by a strong euro. Commodity currencies have strengthened this week with help from higher gold and oil prices. As long as the dollar remains weak and commodity prices remain high the New Zealand and Australian and Canadian dollars will stay strong. It is also a lot harder for the central banks of these countries to cut rates when their economies are booming and the high rates help keep the currency strong also. Finally, considering that tomorrow is Friday and that Monday is New Years Eve there should be a lot of position squaring. Even so I can’t help but expect a reaction to new housing starts, if they are weaker than expected I would expect dollar selling in the morning followed by a recovery in the afternoon as people take off short positions ahead of the holiday. On the other hand a strong report would take the market by surprise and convince participants to exit earlier and possibly even place dollar long positions for day trading purposes. So I think the tone will really be set by the news for the session but I would expect dollar weakness before the figure and that one way or another I see the dollar rallying by the end of the session by either pure profit taking or actual buying. New Years is notorious for big moves and illiquidity, some of the biggest moves I have ever witnessed occurred on the last day of the year. Be ready for something big to happen next week.
