Once again, the dollar was facing pretty stiff, fundamental cross winds; and yet the greenback could not be dissuaded from its momentum – or lack thereof. Once again, the major mover for the session was GBPUSD which tacked on an additional 180-point slide from yesterday’s close to tally up a nearly 300-point move from the notable technical break of a mature rising trend. This pair’s drive is the exception among the majors however, and is likely finding more selling interest on the pound side than buying pressure for the dollar (What do you think will happen to the GBPUSD? Join the discussion and voice your opinion on the DailyFX Forum). Elsewhere, the dollar was holding tight ranges as the market throttles back ahead of the low liquidity, holiday activity next week. EURUSD was settling just above 1.43, USDJPY further defined its 112.75-113.50 range and USDCHF slowly crept towards 1.16. With the end of the week fast approaching, it seems the likelihood of new trends is low - though sharp volatility is certainly still a risk.
Thursday’s economic calendar was full in comparison to yesterday’s barren listings. As the each of the different indicators crossed the wires through the morning New York session, the surprises seemed to grow worse and worse. Kicking things off, the final reading on third quarter GDP was little changed from its previous revision. The economy grew at an annualized 4.9 percent pace, no change from the fastest clip in four years. Looking beneath the surface, though, there were a few notables. Among the most interesting alterations came on the part of the core PCE reading, the Fed’s favored inflation gauge, which was revised from a 1.8 percent pace to 2.0 percent – the top of the policy group’s acceptable range. However, while this mix of strong growth and rebounding price pressures seems like ideal condition for a dollar rebound, the forecast is not so bright. These third quarter numbers do not account for the worse of the credit market turmoil or the deepening housing slump and what effects it may have on consumer and business spending in the months ahead.
If the jobless claims data that crossed the wires at the same time the GDP data was being disseminated gives an accurate and timely measure of consumer confidence, growth may have certainly stumbled through year’s end. According to the Labor Department’s statistics, the number of people filing for unemployment benefits for the first time over the week ending December 15th, rose more than expected to a month high 346,000. However, the real concern was for the less-volatile, four-week moving average which rose to its highest point level since October of 2005 – following hurricane Katrina. Similarly concerning was the Leading Indicators composite for November. Used to forecast growth in the coming three to six months, a weaker than expected -0.4 percent reading marks the seventh month this year that the indicator has contracted. From the breakdown, jobless claims, consumer confidence and the stock price figures were providing the greatest burden. Altogether, this indicator only works to confirms concerns that the economy is heading for a recession. Finally, the Philly Fed factory activity survey for December marked the biggest surprise and disappointment for the day. A typically low volatility report, the indicator spurred its 2.2 percentage point dip for a massive 13.9 percentage point drop to -5.7, the worst reading since April of 2003.
Looking ahead to Friday, there are a few indicators in queue; but they hold little promise for moving the markets with most of the market already closing shop for the long holiday weekend. November’s personal spending and income figures for November are both expected to improve substantially as the holiday season approaches. However, with rising mortgage and gas prices, along with cooling labor trends, these numbers could quickly turn south. Perhaps of greater interest will be the PCE numbers for November. With the Fed already on a well trodden path to ease monetary policy to boost growth and stabilize credit markets, it will fall to inflation to keep put a stopper in the steady rate cuts (What do you think the Fed's next move will be? Voice your opinion in the DailyFX Forum). The annualized core number is expected to accelerate and match the third quarter’s 2.0 pace while the deflator is seen jumping from a 2.9 percent pace to 3.4 percent.
