U.S. Dollar Falls as Economy loses 85,000 Jobs

James A. Hyerczyk , ForexHound.com

The U.S. Dollar finished sharply lower on Friday following the release of a U.S. Non-Farm Payrolls Report which showed the economy lost 85,000 jobs in December. This bearish number surprised traders who were looking for evidence that the U.S. economy stopped losing jobs in December.

Economists were looking for December Non-Farm Payrolls to rise by 10,000. Most came to this conclusion because of weekly initial claims and other employment index reports. However, the ADP jobs data report which was released earlier in the week showed that 84,000 were lost in the private sector. Today’s report which included both the private and government sectors lost 85,000 jobs. This leads one to speculate that either the government has to start hiring, or it has to begin spending more money to create jobs in the private sector.

The EUR USD rallied following the U.S. jobs data report. This bullish move erased an earlier loss triggered by an overnight report which showed that the Euro Zone unemployment rate reached 10% in November. Regaining of the retracement zone at 1.4350 to 1.4319 is a sign of strength. Upside momentum could be building which sends the Euro back to 1.4680 - 1.4799 over the near-term.

The GBP USD surged to the upside but was only able to settle inside a retracement zone at 1.5988 to 1.6036. Uncertainty over the upcoming general election most likely limited today’s upside action. Traders remain concerned about the budget deficit and other fiscal issues.

The bearish U.S. jobs picture helped weaken the USD JPY. In addition, the Japanese Finance Minister retracted statements he made yesterday regarding his desire for a weaker Yen. Technically, the USD JPY fell back below a key 50% number at 93.13. Breaking back under 92.32 will be the first sign of real selling pressure. The weekly closing price reversal top indicates the start of a possible decline to 89.30 - 88.24.

Based on the short-term range of .9918 to 1.0547, traders should look for the USD CHF to weaken into 1.0212. Breaking this level is likely to trigger a further decline to 1.0143.

The USD CAD resumed its downtrend following the bearish U.S. jobs data report. The current chart pattern suggests that the next downside target is 1.0265. Stronger gold and crude oil prices are helped to underpin the market. Downside momentum could slow if the Bank of Canada starts to talk about the need for a weaker currency.

The AUD USD moved higher as weak U.S. jobs data report triggered renewed demand for higher yielding currencies. Friday’s intraday turnaround suggests the next upside target is .9321. Taking out .9265 will negate Thursday’s closing price reversal top.

The NZD USD rallied on renewed demand for higher yielding currencies. Regaining a pair of downtrending angles on the daily chart is a sign of strength. Taking out .7427 will negate Thursday’s closing price reversal top and should trigger more upside action.

Stocks Gain on Increased Demand for Risky Assets

U.S. equity markets erased earlier losses triggered by the weaker than expected U.S. Non-Farm Payrolls Report to close higher for the day. Traders reacted to the fact that the U.S. employment situation is still indicating a weak recovery. The markets turned around, however, as investors saw the break as a buying opportunity. As the Dollar fell, traders bought up stocks as demand for higher risk assets picked up. Traders now feel that a hike in interest rates by the Fed is a long way off and the best investment opportunities are in the equity markets.

Treasury futures rallied following the release of the bearish U.S. jobs data report but the markets could not hold on to their gains. Traders bought March Treasury Bonds and Notes on the thought the Fed will continue to refrain from hiking rates for several more months. Late in the session, March Treasury Bonds weakened as traders realized the government may have to spend more money to create jobs. If this market is going to accelerate to the upside, then traders will have to get aggressive following a breakout over 116’05.

February Gold traded higher because of the weaker Dollar. Traders should watch for an acceleration to the upside following a trade through $1141.00. This move is likely to trigger a continuation of the rally with $1151.30 the first major upside objective.

The weaker than expected jobs data report helped to limit upside movement in the March Crude Oil. Traders also feel that a slowing economy will led to less demand for crude oil. Technically, this market remains vulnerable to a retracement to 78.80.

The U.S. Dollar finished sharply lower on Friday following the release of a U.S. Non-Farm Payrolls Report which showed the economy lost 85,000 jobs in December. This bearish number surprised traders who were looking for evidence that the U.S. economy stopped losing jobs in December.

Economists were looking for December Non-Farm Payrolls to rise by 10,000. Most came to this conclusion because of weekly initial claims and other employment index reports. However, the ADP jobs data report which was released earlier in the week showed that 84,000 were lost in the private sector. Today’s report which included both the private and government sectors lost 85,000 jobs. This leads one to speculate that either the government has to start hiring, or it has to begin spending more money to create jobs in the private sector.

The March Euro rallied following the U.S. jobs data report. This bullish move erased an earlier loss triggered by an overnight report which showed that the Euro Zone unemployment rate reached 10% in November. Regaining of the retracement zone at 1.4350 to 1.4319 is a sign of strength. Upside momentum could be building which sends the Euro back to 1.4680 - 1.4799 over the near-term.

The March British Pound surged to the upside but was only able to settle inside a retracement zone at 1.5988 to 1.6036. Uncertainty over the upcoming general election most likely limited today’s upside action. Traders remain concerned about the budget deficit and other fiscal issues.

The bearish U.S. jobs picture helped strengthen the March Japanese Yen. In addition, the Japanese Finance Minister retracted statements he made yesterday regarding his desire for a weaker Yen. Technically, the Japanese Yen tried to regain a key 50% number at 1.0825. Rallying back over 1.0818 will be the first sign of real buying power. The weekly closing price reversal bottom indicates the start of a possible rally to 1.1223 - 1.1351.

Based on the short-term range of 1.0090 to .9527, traders should look for the March Swiss Franc to strengthen into .9806. Regaining this level is likely to trigger a further rally to .9873.

The March Canadian Dollar resumed its uptrend following the bearish U.S. jobs data report. The current chart pattern suggests that the next upside target is .9740. Stronger gold and crude oil prices helped to underpin the market. Upside momentum could slow if the Bank of Canada starts to talk about the need for a weaker currency.

Economists were looking for December Non-Farm Payrolls to rise by 10,000. Most came to this conclusion because of weekly initial claims and other employment index reports. However, the ADP jobs data report which was released earlier in the week showed that 84,000 were lost in the private sector. Today’s report which included both the private and government sectors lost 85,000 jobs. This leads one to speculate that either the government has to start hiring, or it has to begin spending more money to create jobs in the private sector.

The March Euro rallied following the U.S. jobs data report. This bullish move erased an earlier loss triggered by an overnight report which showed that the Euro Zone unemployment rate reached 10% in November. Regaining of the retracement zone at 1.4350 to 1.4319 is a sign of strength. Upside momentum could be building which sends the Euro back to 1.4680 - 1.4799 over the near-term.

The March British Pound surged to the upside but was only able to settle inside a retracement zone at 1.5988 to 1.6036. Uncertainty over the upcoming general election most likely limited today’s upside action. Traders remain concerned about the budget deficit and other fiscal issues.

The bearish U.S. jobs picture helped strengthen the March Japanese Yen. In addition, the Japanese Finance Minister retracted statements he made yesterday regarding his desire for a weaker Yen. Technically, the Japanese Yen tried to regain a key 50% number at 1.0825. Rallying back over 1.0818 will be the first sign of real buying power. The weekly closing price reversal bottom indicates the start of a possible rally to 1.1223 - 1.1351.

Based on the short-term range of 1.0090 to .9527, traders should look for the March Swiss Franc to strengthen into .9806. Regaining this level is likely to trigger a further rally to .9873.

The March Canadian Dollar resumed its uptrend following the bearish U.S. jobs data report. The current chart pattern suggests that the next upside target is .9740. Stronger gold and crude oil prices helped to underpin the market. Upside momentum could slow if the Bank of Canada starts to talk about the need for a weaker currency.

James Hyerczyk , Futures Hound

EUR/USD Still in Demand From Central Banks

Traders report steady interest among central banks to buy EUR/USD on dips this morning. Upwards of a yard (EUR 1 bln) was said to be bought buy Korea this morning after the Stark comments saying that there will be no European bailout for Greece. Traders say the buying continues around present levels, but rallies seem quite muted.

Iceland and Greece are back in the headlines and that is never a good thing for the EUR. it would appear.

The sharp bounce from below 1.43 keeps alive the perception that we are trapped in a range somewhere between 1.4200 and 1.4500 probably until the employment report, if not beyond.

EUR/USD trades now at 1.4352.

By: Jamie Coleman Forexlive.com

Finance Minister Resignation Forces Yen Down

The yen declined today versus virtually all of the 16 main traded currencies as investors opted for higher-yieldingcurrencies betting on the global economic recovery for 2010, abandoning yen priced assets after Japan’s Finance Minister Hirohisa Fujii resigned today.

The yen posted the sharpest losses today versus commodities linked currencies like the Australian dollar, as demand for metallic commodities has been rising since the beginning of the week. The Japanese currency, known for its safer profile, has been less attractive in the beginning of 2010 as most traders expect an economic recovery in a worldwide scale, which is fueling rallies in both equities and commodities markets, consequently bringing investors to currencies linked to these fluctuations, as the Canadian dollar, which also gained significantly versus the yen and continues to advance versus its U.S. counterpart.

Even if the Japan’s finance minister resignation occurred due to health reasons, a shift on this position combined with a strong risk appetite sentiment made the yen to rank as the less attractive investment in currency markets today, and it may extend its losses further as long as optimism remains strong.

AUD/JPY traded at 84.66 as of 14:54 GMT from a previous rate of 83.59 yesterday. CAD/JPY traded at 89.25 from 88.18.

From: TopForexNews.com

U.K. Mortgage Approvals, PMI Manufacturing Advance Amid Stabilizing Economy

Overview
U.K. Mortgage approvals in November climbed to 60,500 from a revised 57,700 the month prior, with expectations of 58,000, marking its highest level since March 2008, further adding signs that the economy is stabilizing from the worst recession since World War II.

Meanwhile, the regions purchaser manufacturing index which is based on a survey of over 600 business executives in the region climbed to 54.1 in December from 51.8 the previous month amid economists forecast of 52.0, posting the strongest rise in more than two years, according to a survey by the Chartered Institute of Purchasing and Supply and Markit Economics.

Breakdown
Taking a deeper look into the report, the Bank of England stated gross mortgage lending was 12.5 billion pounds in November, the most it has been since January 2009, while net consumer credit tumbled by 376 million pounds during the month amid the drop in overdraft and personal loans offset higher credit card borrowing. The fall in consumer credit was led by other lenders plunging 1,211 million, while banks added 1,702 million to taper the decline. At the same time, the final reading of the M4 money supply which the bank uses to assess the effectiveness of its asset purchases pushed 0.1% higher in November and rose 9.3% from a year ago.

Forecast
The rise in manufacturing and mortgage approvals have started the U.K. off with a good start this year, and with the central bank likely to maintain its program of purchasing bonds with its 200 billion pound newly-created money, policy makers are anticipated to keep its benchmark interest rate at a record low of 0.5% as their inflation outlook remains unchanged despite recent global news. After release of the data, the GBP/USD leapt 43 pips in the first ten minutes and later went onto reach an intraday high of 1.6243, climbing a net 82 pips subsequent to the data announcement.

UK CBI Chief: Election Politics Threaten Economic Recovery

UK CBI Chief: Election Politics Threaten Economic Recovery 

LONDON -(Dow Jones)- Efforts by the U.K.'s main political parties to curry favor with voters ahead of the general election poses risks to the economic recovery, the head of the Confederation of British Industry warned Friday. 

Richard Lambert, a former member of the Bank of England's Monetary Policy Committee and director general of the CBI, the U.K.'s largest business lobby, said business owners are already facing uncertain economic prospects. 

"And we are already in that frustrating period in the runup to a general election when policies are set by opinion polls and politicians are unwilling to look much further ahead than the end of their noses," he said in a new year message. 

Prime Minister Gordon Brown must hold an election by June 3, with his Labour Party currently trailing the opposition Conservatives by a significant margin in recent polls. 

In his own new year message, Brown said his government's economic strategy is to "go for growth" and warned that opposition promises to put a squeeze on public spending could "wreck the recovery." 

The U.K. has been in recession since the second quarter of 2008, suffering its deepest recession in decades. The CBI expects the economy to return to growth in the fourth quarter of 2009 but says the recovery will be slower than the government predicts. 

Lambert said the other main risks to the recovery are the still-fragile banking system and the "poor shape" of public finances. The CBI again urged the government to establish "a credible path back to fiscal stability." 

Lambert said many businesses remain worried that these difficulties could yet cause a double-dip recession in the U.K. but that the more likely outcome is a very slow recovery. 

But Lambert said there will also be opportunities for U.K. firms over the next year. 

"The message is that the U.K. does indeed face big structural problems, but with sufficient determination they can be largely fixed within the lifetime of the next parliament," he said. 

Lambert also said he hopes the passing of the election will see the debate about the banking system's future move on from "political point-scoring around bonuses to much more important questions about reserves and liquidity." 

-By Laurence Norman, Dow Jones Newswires; 44-207-842-9270; laurence.norman@dowjones.com 

Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=njpUEtGnIyyS%2BBEqvjib6A%3D%3D. You can use this link on the day this article is published and the following day. 

(END) Dow Jones Newswires
December 31, 2009 19:16 ET (00:16 GMT)

Dollar Gains on Jobless Claims Decline

The U.S. currency rebounded versus the euro before the end of this week’s session as another positive report brought optimism towards the economic outlook in 2010 for the United States.

After losing versus the pound, euro, and higher-yieldingcurrencies earlier, today the dollar managed to pare much of its losses as applications for jobless claims declined for another week in the U.S., surprising forecasts, and adding confidence that economic improvements are accelerating in the world’s wealthiest nation.

EUR/USD closed the week at 1.4329 from as high as 1.4441 before the report.

From: TopForexNews.com

Chicago PMI Surprisingly Rises to Nearly 4-Year High

The Chicago Purchasing Managers Index (PMI) surprisingly rose for a third month in December to a nearly four-year high of 60.0 from 56.1, indicating that business activity is growing at a faster clip. A breakdown of the index shows that prices, production, new orders, and employment have all been on the rise, providing a more optimistic view of activity than various measures of manufacturing sector activity, such as the Dallas Fed and Richmond Fed reports. Ultimately, this suggests that the services sector is leading the way to US economic recovery.  By DailyFX.com

Crude Oil Extends its Strongest Rally Since October as the Dollar Settles, Inventories Contract

North American Commodity Update

Commodities - Energy

Crude Oil Extends its Strongest Rally Since October as the Dollar Settles, Inventories Contract

Crude Oil (LS NYMEX) -  $79.26  //  $0.29 //  0.49%

Unusually cold temperatures for the eastern United States, ongoing political turmoil and a steady rebalancing of supply-and-demand has maintained oil’s advance long enough to mark the commodity’s most consistent bull wave in over four months. While much of Wednesday’s progress was founded on the momentum in the impressive 16 percent-plus upswing of the past three weeks, there were additional fundamental components to keep the market elevated. Among the more pressing factors for speculators today was the Department of Energy inventory reports. Analysts were projecting a fourth consecutive decline in crude stores in the period through December 25th; and the realized contraction was notably smaller than the Bloomberg consensus. According to the government’s statistics, crude inventories fell 1.535 million barrels through last week. In similar fashion, stockpiles of distillate fuels dropped 2.06 million barrels and those for gasoline eased back 336,000 barrels. Altogether, the recent trend in supply is encouraging; yet at the same time, the overall level is still well above the average of the past five years. What’s more, demand is still well off the pace needed to put a fundamental backing to a speculative run back towards record highs.

However, despite the persistent imbalance between supply and demand in the post-recessionary market, we are seeing the influence that other fundamental factors can rouse through speculative channels. For a demand outlook, the Chicago ISM’s national business gauge for the US rose to its highest level since January of 2006. A jump in employment and new orders further supports hope that this improvement is not simply superficial inventory rebuilding. Then there is also the short-term impact that weather forecasts have been known to have on speculation.  Following up on the blizzard and unusually cold weather of the past two weeks, the Eastern seaboard is expected to suffer from atypically frigid temperatures for the next two weeks. Geo-political events are also playing their part. The international response to Iran’s crackdown on political protestors this past week casts doubt over the output of OPEC’s second largest producer.

Commodities - Metals

Gold Settles into the Year-End Along with the Dow and Dollar

Spot Gold  -  $1,093.25  //  -$3.59 //  -0.33%

Though volatility and speculative trends are holding up relatively well for some other markets; gold seems to be going the way of equities and the dollar by closing out the year quietly. Volatility and trading were very light through the European and US trading hours, with a daily range that measured a meager $11 for spot gold. Considering the state of the fundamental drivers that back this market, it comes as little surprise that gold bugs are unwilling to establish a meaningful trend. As a hedge to the US dollar, the metal is tracking an anchored greenback. The currency has turned to a pattern of congestion the past week as the bulk of position unwinding has already been run through before liquidity fully drained. As its capacity as a counterbalance for inflation, speculative interests have faded into the closing days of the year, leaving the iShares TIPS index to establish a temporary floor for its reversal from its 16-month high at 103.50. Finally, gold traders are looking to avoid the effects that a thinned market will have on price action. Like any other speculative asset, the precious metal is running on reduced leverage. Aggregate volume on the active futures contract was already pushing a four-month low to start the week and the CBOE Gold Volatility Index is holding just above the three-month average at 24.5 percent.

Spot Silver  -  $16.81 //  -$0.29 //  -1.70%

Another bearish push for silver sent the commodity to its lowest close since November 3rd. However, despite the nearly five-percent swing so far this week, the market is still carving a very conspicuous range (between $17.75 and $16.75 per ounce) that befits the general liquidity conditions for the market this week. For speculative interests, aggregate volume has plunged to lows not seen since the rollover from 2008 to 2009. Furthermore, the lack of fundamental cross winds from the dollar and gold offer longer-term investors and short-term traders little to work with.

Written by John Kicklighter, Strategist
DailyFX.com 

British Pound Breaks Out of Narrow Range, Euro Remains Little Changed

The British Pound fell to a low of 1.5857 against the greenback, with the RSI slipping into oversold territory, and the currency may continue to trend lower over the remainder of the week as price action breaks below the narrow range carried over from the previous week.

Talking Points
•    Japanese Yen: Modestly Lower Across the Board
•    Pound: U.K. Pledges to Support Economic Recovery
•    Euro: Private Sector Loans Weaken for Third Month
•    US Dollar: Chicago Purchasing Manager Index on Tap

British Pound Breaks Out of Narrow Range, Euro Remains Little Changed

The British Pound fell to a low of 1.5857 against the greenback, with the RSI slipping into oversold territory, and the currency may continue to trend lower over the remainder of the week as price action breaks below the narrow range carried over from the previous week. Nevertheless, the drop in market liquidity is likely to produce difficult trading conditions, and we may continue to see choppy price going into the U.S. trade as investors go off-line ahead of New Years Day.

Meanwhile, U.K. Prime Minister Gordon Brown said that the government’s efforts to lower the budget deficit must be “sensible” and “fair” as the economic recovery remains “fragile,” and pledged to “reduce the deficit at a responsible pace, without choking off the recovery or damaging the frontline services the mainstream majority rely on.” As policy makers maintain the expansion in monetary and fiscal policy to encourage a sustainable recovery, the Bank of England is widely anticipated to hold the benchmark interest rate at the record-low of 0.50% in an effort to balance the risks for growth and inflation, and may look to extend its emergency program as the global financial system remains vulnerable to future shocks.

The Euro slipped to a low of 1.4306 during the Asian trade, but regained its footing during the European session to remain little changed from the previous day, and the single-currency may continue to trend sideways going into the following week as market liquidity slumps ahead of the new year. Meanwhile, the economic docket showed M3 money growth in the Euro-Zone unexpectedly fell 0.2% in November after expanding 0.3% during the previous, while the 3-month average increased 0.6% amid expectations for a 0.6% rise. The breakdown of the report showed private sector loans slumped at an annual pace of 0.7% to mark the third consecutive decline, and conditions may get worse over the following year as households face a weakening labor market paired with tightening credit standards.

U.S. dollar price action was mixed across the board, with the USD/JPY tipping higher for the third day to reach a fresh monthly high of 92.28, and the reserve currency could face increased volatility going into the North American trade as equity futures foreshadow a lower open for the U.S. market. At the same time, economic activity in the world’s largest economy is expected to expand at a slower pace in December as economists forecast the Chicago PMI to weaken to 55.1 from 56.1 in the previous month however; conditions are likely to improve throughout the following year as policy makers aim to encourage a sustainable recovery.

From the Dailyfx.com

Could a recuperating housing market help confidence?

Housing Prices could be an eye opener
Housing data in the U.S could add to the holiday spirits this week, as house prices are expected to drop by -7.10%, compared to a previous -9.36%. Even though parts of the housing market are now showing minor improvement - housing starts recently increased, showing impressive figures, other results such as New-Home Sales have sharply declined. Single-family homes declined 11.4% in November to a seasonally adjusted annual rate of 355,000 units.
One must note that recent improvement in leading parts of the economy have been fueling the Dollar rally, driving it to higher levels against counterparts, but as mixed signals continue to show a fragile housing market, investors will scrutinize the upcoming data, as a worse than expected figure could put pressure on the Greenback.
Consumer confidence is on the rise
In addition U.S consumer confidence is expected show a 52.7 figure, compared to a previous 49.5. Usually released on the last Tuesday of the month, investors watch this number closely as increasing confidence, often leads to personal consumption. Recent figures have been bouncing around the 50 mark, as Main Street remains dubious about the recent recovery. A higher than expected reading is normally considered to be bullish for the USD.

Posted by Etoro on Monday December 28, 2009 8:25 am

Asian Stock Markets Extend Advance on Growth Optimism; Hong Kong Exports Rise for the First Time in 13 Months

Asia Session Key Developments Japan’s Industrial Outputs Advance for Ninth Month Australian Markets Closed in Observance of Christmas/Boxing Holiday The Asian stock markets climbed to a three-week high on Monday as policy makers in China held an improved outlook for growth while former Bank of Japan Governor Toshihiko Fukui expects “stable and sustained” growth next year as the expansion in global policy continues to feed through the world economy. Meanwhile, industrial outputs in Japan rose for the ninth uninterrupted month, displaying signs that the economic expansion is accelerating as Asia leads the world economy out of the first recession since the Second World War. At the same time, Japan’s retail trade rose for the fourth time in the past five months, while labor cash earnings in the region slumped at an annual pace of 2.8% to exceed expectations for a 1.8% drop. Furthermore, Hong Kong’s exports in November rose for the first time in 13 months, with overseas shipments gaining 1.3% from a year earlier after tumbling 13.1% the month prior, while imports leaped an annualized 6.5%, which widened the trade deficit to HK$20.7B from HK$19.2B in October. Nikkei 225                          10,378.03 The Japanese equity markets advanced on Monday, leading the Nikkei 225 to gain 139.52 points (1.33%) and close at 10,634.23. All ten components pushed higher on the day, with consumer services leading the rally, rising 2.39%, which was followed by a 1.70% gain in oil & gas. Shares of Sharp Corp advanced 2.17% after the firm reached a patent cross-licensing agreement with Toyoda Gosei Co, while Nippon Oil Corp soared 4.80% as the firm announced plans to close three crude distillation units next year to lower costs. Meanwhile, Nippon Mining leapt 5.43% as Japan Energy, a unit of Nippon Mining, will process 5% more crude oil in January through March versus the same time period a year ago, while JFE Holdings advanced 1.37% as industrial outputs in Japan increased for the ninth month in November. Hang Seng                        21,480.22 Hong Kong shares pushed lower on Monday as the government sold two development sites below market expectations, leading the Hang Seng Index to shed 36.78 points (0.17%) and close at 21,480.22 as five of the nine components traded lower on the day. Shares of Sino Land advanced 0.55% after paying HK$10.4B with K Wah International to acquire two waterfront sites in Hong Kong’s New Territories, while Henderson Land Development slid 1.99% following the sale. Moreover, China Resources Power Holdings, the country’s fourth largest listed power company by market value added 0.82% as the company actively participated in coal mine consolidations in Shanxi Province, while China Petroleum rose 0.65% on the back of higher commodity prices. S&P/ASX 200 Index           4,790.90 Closed in observance of Christmas/Boxing Day Posted by CFDTrading on Monday December 28, 2009 8:28 am

Japan Remains Mired In Deflation, Unemployment On The Rise Again

(RTTNews) -  Japan marked nine months of deflation in November while official data also showed that the nation's jobless rate is rising again, adding to worries that the recovery of the world's second largest economy is losing steam.

Japan's core consumer prices dropped 1.7% year-on-year in November compared to the 2.2% fall in the preceding month, the Ministry of Internal Affairs and Communications reported on Friday. That compared to expectations for a 2% decline. The annual rate of deflation has now decelerated for the third straight month.

Month-on-month, the core CPI, which excludes fresh food from the price basket, dropped 0.2% in November following the 0.1% fall in October.

BNP Paribas economist Azusa Kato said that the deceleration of the decline in core CPI was simply the result of a "technical error", namely the waning base effect from surging petroleum product prices through August of last year.

"Prices of petroleum products have actually fallen over the past two months, but diminished base-year effects associated with a sharp rise through August 2008 followed by a sudden retrenchment mean that the pace of year-on-year decline has actually slowed," he explained. "These technical factors aside, there is no indication whatsoever that deflationary pressure might be starting to abate."


November's CPI results are likely keep up the pressure on the Bank of Japan, which has been in a running feud with the government on how to tackle deflation. Earlier this month, the central bank said it was a "critical challenge" to overcome deflation and added that it "would not tolerate" annual prices at, or below, zero. The bank promised to keep interest rates low, but did not specify how it planned to combat deflation.

Meanwhile, core consumer prices in the Tokyo region for December, a good indicator of future movements in the price index, dropped 1.9% from a year earlier - the same rate of decline as in the previous month. Economists were looking for a 2% fall.

On a monthly basis, Tokyo core CPI dropped 0.2% in December, adding to the 0.1% slide in the preceding month.

Also on Friday, the Ministry of Internal Affairs and Communications reported that the unemployment rate climbed for the first time in four months in November. The jobless rate stood at a seasonally adjusted 5.2% in November, up from 5.1% in the previous month. That came in line with the consensus call of 5.2%.

In November, the unemployment rate was at 5.4% among males and 4.9% among females. The total number of unemployed persons declined to 3.31 million from 3.44 million. At the same time, the number of employed persons edged down to 62.60 million from 62.71 million in the prior month, while total labor force strength slid to 65.91 million from 66.15 million.

Dollar Finds Support On Labor and Durable Goods Data

The U.S. economy continues to show signs of recovery as initial jobless claims fell to its lowest level in 15-months and demand for long lasting goods increased. The labor market which is considered a lagging indicator has started to show a pulse with November’s Non-farm payroll report showing the country lost only 11,000 jobs.

The U.S. economy continues to show signs of recovery as initial jobless claims fell to its lowest level in 15-months and demand for long lasting goods increased. The labor market which is considered a lagging indicator has started to show a pulse with November’s Non-farm payroll report showing the country lost only 11,000 jobs. Therefore, the economy may have generated jobs in December for the first time in two and half years. The improving job market is starting to translate into greater consumption from Americans which was evident in the 0.2% improvement in Durable Goods orders. The 2.0% gain in the ex-transportation is a sign that broader demand is improving. A look at the breakdown shows rebounds in machinery to 3.5% from -7.5% and computers/electronics to 3.7% from -1.9%. The dollar gained as the improving fundamentals raised the outlook for U.S. interest rates ending its two day slide.

Written by John Rivera
dailyfx.com