Obama Unveils Plan to End Proprietary Bank Trading

Can Obama Save the Dollar....???

U.S. President Barack Obama laid out a plan to separate investment banking from commercial banking, saying that banks have acted "contrary" to their customers' interests. His proposal would ensure that "no bank or financial institution that contains a bank will own, invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to service customers for its own profit." He says he will also limit the size of the largest financial institutions.

Obama followed that up with an ode to his determination to get this legislation passed, saying "we have to get this done" and warning that an "army" of lobbyists is trying to block it but that it's "a fight I'm ready to have.”

The announcement led to a crushing blow to stocks and a slump in the USD against the yen.

The Bank of Canada

More Canada~~~~

The Bank of Canada left interest rates at 0.25%, as expected but policymakers also said that “conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010.” The Canadian dollar also weakened in the aftermath of the statement as, the central bank said, “the persistent strength of the Canadian dollar and the low absolute level of U.S. demand continue to act as significant drags on economic activity in Canada.” They also said the main risks to the economy “are a more protracted global recovery and persistent strength of the Canadian dollar that could act as a significant further drag on growth and put additional downward pressure on inflation.”

Canada

“not out of the woods yet” well tell us what that means Flaherty!!!

The Canadian dollar crept closer to parity with the USD on Monday after a rise in oil. With U.S. markets closed we noted comments from Canada’s finance minister Jim Flaherty who said the economy is “not out of the woods yet”, speaking to journalists in Miramichi, New Brunswick, he emphasized that Canada has yet to recover fully. The finance minister also once again voiced his concerns about the volatility of the Canadian dollar. Addressing the greenback, Flaherty said that “downward pressure” on the currency is “substantial” due to the size of the U.S budget deficit.

Short-Lived Surge in EUR/USD in Wake of Generally Downbeat U.S. Retail Sales & Jobless Claims Data

Yet..again..still disappointing :(

U.S. core (excluding autos) advance retail sales fell 0.2% in December, disappointing expectations for a 0.3% rise to add to their revised 1.9% gain the month prior. Meanwhile, headline sales dropped 0.3% versus calls for a 0.5% rise and following their revised 1.8% increase in November. Core sales (excluding both autos and gas) slipped by 0.3%, disappointing expectations for a 0.2% gain to buttress their 1.0% rise previously. Released simultaneously, initial jobless claims (week of Jan. 9) rose to 444k, above calls for an increase to 437k from their revised 433k level the week before. However, continuing claims (week of Jan. 2) fell by more than expected: they dropped to 4596k from a revised 4807k the week before; economists expected a decline to only 4750k. In the aftermath of the mostly downbeat data, the euro climbed by 19 pips to $1.4519USD, before rapidly declining to pre-release levels.

FOMC Voter Hoenig Says Downbeat U.S. Employment Report Doesn’t Affect His Outlook for the Economy

A little update my fellow Americans....

Despite last Friday’s benchmark U.S. employment report revealing the world’s largest economy lost 85,000 jobs in December, Kansas City Fed President Thomas Hoenig said on Monday that he hasn’t altered his projection for a “modest” yet “persistent” recovery. Speaking in an interview with Bloomberg Radio, the central banker added that he forecasts that the American economy will expand by between 3% and 3.5% in 2010. Asked by the broadcaster if the central bank could begin tightening monetary policy even with the unemployment rate at 10%, Hoenig, who votes on the FOMC this year, responded, “The answer is yes, you can, given you are at zero [in terms of interest rates].” He also said that the Fed should cease its purchases of mortgage-backed securities at the end of March, as planned, due to the fact that the private mortgage market is “healing”. During Hoenig’s interview, EUR/USD weakened by as much as 26 pips, reaching $1.4508USD, before beginning to make gains again.

FOMC

Hey guys this is just a great update so check it out!!!!!! Read it and post your comments below :)

The FOMC continues to worry about the economy, rather than inflation, according to the minutes of the Dec. 15-16 meeting. In a surprise, some members said more stimulus "might become desirable." The other takeaway is that although they expect a recovery, it will be slow and shallow. They see growth strengthening over the next two years but a "rather slow" rise in output (GDP) and employment. The dollar sold off on this, as it should. The two most important passages from the Minutes are here:

“A few members noted that resource slack was expected to diminish only slowly and observed that it might become desirable at some point in the future to provide more policy stimulus by expanding the planned scale of the Committee’s large-scale asset purchases and continuing them beyond the first quarter, especially if the outlook for economic growth were to weaken or if mortgage market functioning were to deteriorate.”

This is the passage likely to generate the headlines but the content is somewhat less eye-catching than the headline. For sure, this is a USD negative, as it pushes even the outlook for withdrawing quantitative easing deeper into 2010. But this assessment largely rests on the continuing outlook, which even since the meeting in mid-December, has improved. The takeaway is that some members of the FOMC are a long ways from hiking rates.

And:

“Overall, many participants viewed the risks to their inflation outlooks as being roughly balanced. Some saw inflation risks as tilted to the downside, reflecting the quite elevated level of economic slack and the possibility that inflation expectations could begin to decline in response to the low level of actual inflation. But others felt that inflation risks were tilted to the upside, particularly in the medium term, because of the possibility that inflation expectations could rise as a result of the public’s concerns about extraordinary monetary policy stimulus and large federal budget deficits.”

This paragraph sums up the market's view as a whole. Some are concerned about inflation, some believe it's not a problem at all. In this sort of scenario, the Fed has historically erred on the side of rates too low, for too long. Another dollar negative.

EUR, AUD, CAD, NZD all hit session highs immediately after the release

USD Sells Off After Weak Pending Home Sales

North America:
Dollar...Dollar...Dollar....$$$$$!!! :/

The U.S. dollar is ignoring an upbeat factory orders report after a much larger than expected decline in Pending home sales for November. Just moments ago, the National Association of Realtors said that pending home sales fell a sharp 16.0% month-over-month in November, outpacing expectations for a 2.0% decline. Meanwhile, October’s 3.7% pickup was revised up to a 3.9% increase. On an annual basis, sales were up 19.3% despite expectations for a 31.0% increase and October’s 28.6% gain was revise dup to a 28.7% pickup. While not a top tier economic report for the U.S., the news bodes ill for the country’s fragile housing sector. As a consequence, EUR/USD rallied 19 pips to 1.4423 on the news. So far today, EUR/USD has traded in a range of 1.4387 to 1.4484. Short term support lies at 1.4258 with resistance at 1.4536.

U.S. Dollar

Come on UNITED STATES we need the dollar to be doing better...According to this article it was the worst performing G10 currency. The most powerful nation and the worst performing currency?! How can this be... Well, read and find out what is going on with our dollars...

We’re coming more and more around to the conclusion that the U.S. dollar rally in December was primarily fuelled by short covering. Certainly, there was some element of interest rate expectations as the market started to price in Fed rate hikes but that was a much smaller factor. In December, there was some speculation that good U.S. data was on the cusp of creating a paradigm of U.S. dollar strength. Today we saw the ISM manufacturing index rise to 55.9 in December, above the 54.3 consensus and 53.6 prior yet the USD was the worst-performing G10 currency. Friday’s payrolls report will be a real test, in the meantime, we will be keeping a close eye on how the USD reacts to good U.S. news.