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Weekly FX Market Outlook: Demand, Consumption Wanes

December comes to its end, volume could be significantly thin, but market moving data may be still ahead. U.S. and Japan both cut their target rates last week, leaving the benchmark interest rates close to zero. Economic data this week are also expected to raise concerns about weak demand in the two largest economies in the world.



Consumption Wanes

U.S. dollar extended its decline against the Euro last week after the FOMC voted to cut target rate to a range of zero to 0.25 percent. This Wednesday, U.S. Commerce Department may report a 0.7 percent drop in Personal Spending, showing that consumption, which makes two third of the economy, is still far from recovery.


Orders for durable products probably fell in November, another report from the Commerce Department may show the same day. Excluding transportation, sales are expected to fall 3 percent, reflecting a widespread cut in consumer spending.


Housing market, the root of this economic downturn, is still struggling with falling demand, separate reports may show this week. Existing home sales probably fell 1.0 percent last month and sales of new homes, which tends to be a leading economic indicator, also fell at the same period to 415,000, the lowest in nearly two decades.


Carmakers Get More Aid

GM and Chrysler, the two troubled U.S. carmakers, will get aid from Canada for their contribution to North American economy, PM Stephen Harper said on Saturday. The aid will be in government loan aimed to avoid consequences of any failure, especially joblosses in provinces like Ontario. 


The auto industry, struggling with falling sales and revenue, finally got the rescue loan from the government, the U.S. President Gorge W. Bush announced at a press conference last Friday. The news improved market sentiment since a major bankruptcy, which could potentially cost millions of jobs, seems to be avoided at least for now.


Japan Industrial Production Falls

Overseas demand for Japanese products continues to fall as the recession deepens at the exports’ destinations. A report on Friday is expected to show that industrial production declined in November. Preliminary estimate probably point to a 6.8 percent reduction after 3.1 percent decline in the previous month.


Toyota, Japan‘s biggest carmaker, is expected to cut its dividend for the next year.

Falling sales and recent appreciation of Japanese yen darkened profit outlook for Japanese exporters. The so-called Tankan Survey last week showed that businesses become more pessimistic about future.


Domestic demand is also weakening as the Japanese businesses fire more workers to reduce their costs. Jobless rate probably rose to 4.0 percent last month from 3.7 percent in October, a report at the same day may show.


The Bank of Japan cut its target rate to 0.1 percent last week in response to a weaker than expected economic outlook. The reduction came after earlier rate cut by the Fed which made the Japanese yen a higher-yielding currency for the first time since 1993.


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