EUR’s ‘Death Wish 2’…….introducing Soros!

George Soros is obviously short the EUR, the man who broke the BOE back, opens his mouth and questions the longevity of the EUR currency, ‘inadvertently’ persuading the lemmings to buy the greenback and fill his T/P orders. Persuasion and talking one’s own book with authority seems to work for the infamous! Flight to higher ground has the greenback bulls happy.

The US$ is stronger in the O/N trading session. Currently it is higher against 13 of the 16 most actively traded currencies, in another ‘whippy’ trading range.

The US housing data continues to solidify the depth of despair in this sector. Last month the pace of deterioration quickened, sending new home sales to a record low despite prices continuing to decline. Sales fell to +331k units, down -14.7%, m/m, from a revised +388k print. It’s worth noting that that this in stark contrast to the +6.5% m/m jump in ‘existing’ sales! One can conclude that potential buyers prefer at the moment to be putting their cash into resale unit’s rater than new homes especially as foreclosures continue to flood the market at ‘bargain basement’ prices. The months’ supply surged to +12.9%, as housing starts still added +550k homes in Dec. One may conclude, with higher inventory levels that that price will continue to decline!

Not to be outdone, US durable orders fell for a 5th straight month in Dec. (-2.6% vs. -1.9%), signaling the lack of depth of business investment, this will surely prolong the deep recession. This losing streak remains the longest in 17-years. Even more pessimistic, if you excluded autos and aircraft, the core-durables headline fell to -3.6%. Other data revealed that US continuing claims for unemployment benefits also rose to 4.776m for last week. NFP headlines next week look like it wants to reach dizzy heights!

The US$ currently is higher against the EUR -0.65%, GBP -0.55%, CHF -0.18% and lower against JPY +0.55%. The commodity currencies are weaker this morning, CAD -0.68% and AUD -1.25%. Risk aversion trading strategies continues to push the loonie lower as investors seek the safer heaven asset class of the greenback rather than higher yielding commodity currencies. Pessimism expressed by lower equity markets has convinced investors once again to enter risk aversion trades. North American GDP numbers this morning will set the tone for the next couple of big figures. It’s going to be weak, but how weak is the important part. Global economic data, day-over-day is providing another nail for the coffin! In this current market mood, traders are content in buying USD on pull backs.

With RBNZ slashed O/N borrowing costs by a surprising 150bp to 3.5% earlier this week traders are now betting that the RBA will slash rates by 100bp next week which will further reduce the appeal of this high yielding commodity currency. Risk aversion strategies remains the order of the day, thus far the AUD has depreciated 7% vs. the greenback this year (0.6417).

Crude is higher O/N ($41.70 up +26c). As expected the weekly EIA report did not surprise in respect to crude inventories, they have now risen for the 16th time in 18-weeks. Weekly inventories jumped +6.22m barrels to +338.9m over the period vs. an expected climb of +2.9m. But, surprisingly gas stocks fell -121k barrels to +219.9m last week vs. an expected climb of +2m barrels. It’s this drawdown and an elevated equity market which provided crude prices a leg up earlier in the week, but, continuous depressing US data is slowly eroding demand once again. Bearish economic data continues to highlight the depth of the global recession. US housing reports provide strong evidence that the on-going recession in the biggest energy consuming country is only deepening. The black-stuff is finding it very difficult to maintain any bullish momentum, all this despite investors speculating that global stockpiles would decline when OPEC fully implements its promised production cuts. It is expected that OPEC will curb supplies by -5.4% this month to +26.15m barrels a day. OPEC’s secretary general el-Badri is seeking to ‘limit the level of speculation’ by investors who buy oil without planning to use it (hoarding in Supertankers). The organization said this week that ‘they wanted US regulators to curtail oil trading by hedge funds and speculators who helped make last year the most volatile in crude oil markets’. Kinda like not been able to short sell an ‘overvalued’ financial stock! OPEC said that demand for its black-stuff will decline -4.2% this year as the recession in the US, Europe and Japan curbs fuel consumption. It’s expected that consumption of OPEC’s oil will shrink -1.4m barrels a day to +29.5m barrels. With global equities remaining under pressure, gold found aggressive support. Investors seek the ‘yellow metal’ as a store of value ($926).

The Nikkei closed 7,994 down -257. The DAX index in Europe was at 4,436 up +9; the FTSE (UK) currently is 4,206 up +17. The early call for the open of key US indices is higher. The 10-year Treasury yields backed up 17bp yesterday (2.83%) and are little changed in the O/N session. The long end of the US yield curve remains better bid on pull backs as traders anticipate that the Fed will eventually be in a position wanting to buy longer dated securities as a part of their long term stimulus plan. But, medium term debt continues to struggle after the 2 and 5-year note sale this week coupled with the US House of Representatives giving the green light to President Obama’s economic stimulus plan. More product to flood the market!

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