Accumulated gains in the major US equity indices helped boost the dollar in a vacuum of US economic release and a further erosion of trading liquidity in the currency markets. The Dow Jones Industrials Index and the S&P 500 rose 0.9% to a 3 1/2 year low. Equity analysts were unsure whether this was a “Santa Clause” rally or an early “January effect” but agreed on their expectations for seeing further equity run-up into the end of the year ahead of beginning of the year buying following the December tax-related selling.
The main FX story of the day remained that of the falling sterling after a deterioration in housing price to a 12-year high may lead some to revise their expectations for further rate hikes. A strong showing in Canada’s retail sales had only a limited effect on the loonie before the US dollar held it lower.

Sterling extends losses by 2-cents on housing

Cable accumulated its losses to a more than 2 cents from a 1-cent decline in the European session nearing $1.9260 following the Royal Institution of Chartered Surveyors (RICS) house price index showed a decline for the 7th straight month in November down to -48% from -40% in the October period. The index measuring price changes in the three months through November fell to a 12-year low highlighting the deepening slowdown in the nation’s property market. We have seen improving data on the UK macro picture (falling unemployment and rising manufacturing), the house prices figures could throw damp water on possibilities of further rate hikes to avoid the risk of destabilizing the heavily indebted housing market.

Cable’s support starts at $1.9270 and $1.9250. Declines could extend down to $1.92 before end of the week. Upside starts at $1.9380, followed by $1.9430 and $1.95.

Loonie tapers off

USDCAD edged higher within the 1.2250-00 range after mixed Canadian data failed to form one direction. Canada’s leading index of Canadian economic came in flat in November, failing to increase for the first time since May 2003, following a 0.25% rise in October. Economists had expected a 0.2% rise. On the bright side, Canada’s retail sales rose 1.4% in December beating expectations of a 1.0% increase after the Oct reading was revised to 0.3% from 0.2%. But sales ex-autos rose 0.1% undershooting forecasts of a 0.4% rise after a 0.6% increase.

USDCAD resistance starts at 1.2352—the 38% retracement of the 1.3382-1.1715 move. Subsequent pressure seen at 1.2408, followed by 1.2460-65. Support starts 1.2235-40, followed by at 1.2180. Key support stands at 1.2150-- 38% retracement of the rise from the 1.1715 low to the 1.2406 high. A drop below 1.2150, calls up 1.2120. Resistance starts at

EURUSD adrift

Support starts at 1.3330, followed by 1.3260 and 1.3220. Resistance stands at $1.3425-30, the trend line extending from the 1.3468 high through the $1.3441 high. Subsequent pressure stands at 1.3470.