By DailyFX - US Dollar - Even though the holiday shopping season is at the top of everybodys minds, the market could not ignore the...

... fact that oil prices have creeped back above $60 a barrel.

Bad weather in Alaska has forced the Trans-Alaska Pipeline System to
reduce their shipping volumes by 35 percent while Marathon Oil was forced to shut
one of their platforms in the North Sea after a gas leak. Since having remained
below $60 for all of last week, the pop higher in crude prices at a time when the
weather is turning colder in the Northeast is reminding traders of how far prices
have fallen over the past few months. The fear is that if oil continues to climb,
it could deal a blow to the liberal spending that is expected of consumers this
holiday season. This will continue to be the markets main focus with Black
Friday and Cyber Monday right around the corner. Even though the Redbook retail
sales report showed a smaller rise in same store sales over the past week, the
ICSC-UBS chain store sales index jumped 1.2 percent. These are leading indicators
of what may be to come on Friday, but we will not have to wait long to get a true
sense of how holiday shopping will fare this Christmas season as everyone heads to
the stores later this week. Federal Reserve officials continue to be persistently
hawkish with Governor Warsh reiterating that inflation remains uncomfortably
elevated. The minutes from Fed meetings held in October indicate that this
sentiment is quite unanimous although core inflation is not high enough to warrant a
rate hike. The one takeaway point from the Fed is that they will not be adjusting
rates anytime soon. Trading should grind to a halt after noontime tomorrow as US
traders leave early for the Thanksgiving Holiday.

Euro and Swiss Franc - The Euro reversed yesterdays losses after the release of
the Fed minutes. Although nothing groundbreaking was revealed in the minutes,
traders seemed to be comforted by the fact that inflation is not high enough for the
Fed to consider lifting interest rates. Meanwhile economic data from the Eurozone
continued to weaken, which raises the possibility that the ECB could seriously tame
down their outlook for monetary policy after the widely anticipated December rate
hike. French GDP was flat in the third quarter, which brought the annualized pace
of growth down from 2.6 percent to 1.8 percent. The French economy has been weak
and that is expected to be reflected in the countrys consumer spending data
tomorrow. Italian data was also disappointing with industrial orders falling more
than expected and the trade deficit climbing in the month of September. Things were
very different over in Switzerland. Both the trade surplus and the producer prices
were stronger than expected as the weakness of the Swiss Franc played a major role
in boosting exports. The stronger data helped the Swiss franc rally against both
the US dollar and Euro.

British Pound - The British pound extended its strength for the third straight day
after firmer CBI numbers this morning. Originally expected to improve from -20 to
-15, the index printed at -6 for the month of November thanks to a sharp rise in
export orders. In fact, despite overall sterling strength, export orders still
managed to hit an 11 year high. In addition to the recent trend of stronger data,
merger and acquisition news is also supporting the pound. Even though the London
Stock Exchange rejected Nasdaqs bid, the offer highlighted the fervent demand for
UK companies. Today, there were rumors that Spains Iberdrola would be making a
GBP12 billion bid for Scottish Power. The free market principles of the UK are
fueling aggressive merger activity that otherwise would have gone to US who has
suffered under the Sarbanes Oxley Act. The Bank of England is set to release the
minutes from their latest monetary policy meeting tomorrow. The minutes are
expected to reflect their tamer outlook on inflation and bullish outlook on growth.

Japanese Yen - The Japanese Yen is stronger today against the high carry
currencies after Bank of Japans Muto said that the timing of the next rate hike
is “completely open, which includes the possibility of a rate move in December.
Unlike the Japanese government, who were not supportive of tighter monetary policy
or worried about carry trades, Muto said that he, which mostly likely means the
central bank as a whole, is indeed watching carry trades. Meanwhile the minutes
from the central bank revealed nothing more than their continued plans to raise
rates gradually. The problem however is the same one that we have been having for
months now which is that Japanese government will do what they can to stop the
central bank from moving forward. Just as Muto delivered hawkish comments,
Japans Economics Minister Ota said that he wanted to see the BoJ support
continued economic growth through monetary policy which is basically an elegant way
of saying that he wants to see rates remain low so that it could boost economic
activity.

Commodity Currencies (CAD, AUD, NZD) - Commodity currencies are all stronger today
as oil prices rise and gold prices remain firm. The move in oil prices and the rise
in stocks, which hit a new record high, completely offset the sharp drop in retail
sales and the smaller rise in leading indicators. Even though consumer spending
fell in the month of September, the drop was primarily attributed to weaker auto
sales. Outside of the auto sector, sales actually increased. In fact, the main
source of growth in the leading indicator report for the month of October was
consumer spending. Canada is expected to release consumer prices tomorrow while the
markets are expecting the weekly crude inventory data. With the Canadian dollar
beginning to show signs of a bottom, strength in either of those reports could fuel
more meaningful gains for the currency. As for the Australian and New Zealand
dollars, only minor data was released. Australian new motor vehicle sales increased
2.9 percent in October after a 3.0 percent rise the prior month. The annualized
pace of New Zealand credit card spending slowed from 9.2 to 8.9 percent, suggesting
that retail sales could have been a tad softer in the month of October.


Kindest Regards,

Kathy Lien
Chief Strategist
Forex Capital Markets LLC
32 Old Slip, 10th Floor
New York, NY 10004
Tel (212) 897-7660
Fax (212) 897-7669
E-mail: klien@fxcm.com

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