- Lower, diminished Fed rate hike speculation, optimism about the global recovery
- Higher, gains limited by selling in cross trade, EUR/JPY tops 134.00
- Higher, improving risk appetite, shrugs off of possible downgrade of Portugal's debt rating
- Higher, strong Swiss retail sales, gains limited by threat of SNB intervention
- Higher, business optimism improves, Tories pledge to cut UK budget deficit more than Labor
- AUD & CAD higher, China's exports surge, strong Australian jobs & Canadian housing data
Overview
The USD traded lower to start the week pressured by fallout from Friday's report of an unexpected decline in US nonfarm payrolls and in reaction to improving optimism about the global recovery as China's exports surge. The decline in nonfarm payrolls will force the Fed to maintain low yields. The Fed's Bullard said Monday that US interest rates are likely to stay low for quite some time. The surge in China's exports sparked a rally in Asian equities to a 17 month high and contributed to improving risk appetite. CHF was supported by report of strong Swiss retail sales with gains limited by threat of SNB intervention. EUR traded higher despite report Portugal's debt rating may be downgraded. GBP benefits from the Tories pledge to cut the UK budget deficit more than the Labor Party. Commodity currencies surge in reaction to stronger metals and crude prices with gold trading $20 higher and crude prices topping $84 a barrel. AUD was also supported by strong ANZ jobs report and the CAD by strong Canadian housing starts. CAD gains were limited by selling in cross trade to Australia and Europe. Strong economic data from China and Australia fuels speculation that interest rates may be heading higher in Asia. No major US economic data was released in today's trade. Focus turns to the start of the US earnings season and the release of US retail sales and Thursday's ECB policy meeting. USD is vulnerable to long liquidation pressures as investors pare back speculation that the Fed will bring forward interest-rate hikes.
Today's US data:
No data was released in today's trade.
Upcoming US data:
This week's US economic calendar includes the January 12th release of November trade balance expected at -34.30bln compared to -32.94bln last month. On January 13th December Treasury budget will be released expected at -105bln compared to -51.75bln last month. On January 14th December import prices will be released expected at 0.1% compared to 1.7% last month. Also on January 14th initial jobless claims for week ending 01/09, December retail sales and November business inventories will be released. Jobless claims are expected at 430k compared to 434k last week. December retail sales are expected to rise by 0.2% compared to 1.3% last month, ex. autos retail sales are expected to rise by 0.3%. November business inventories are expected at 0.1% compared to 0.2% last month. On January 15th December CPI, December industrial production, capacity utilization January Empire State Manufacturing and January Michigan consumer sentiment will be released. CPI is expected at 0.2% compared to 0.4% last month. Industrial production is expected at 0.4% compared to 0.8% last month and capacity use is expected at 71.6 compared to 71.3 last month. Empire manufacturing index expected at 9.45 compared to 2.55 last month and Michigan sentiment is expected at 73 compared to 72.5 last month.
JPY
Japanese markets were closed Monday for a holiday and the JPY edged higher. JPY was supported by a broad USD weakness sparked by diminished Fed rate hike speculation as the US nonfarm payrolls were weaker than expected and by optimism about the global recovery as China reports strong exports and lending data. JPY gains were limited by selling across trade with AUD/JPY supported by a surge in commodity prices and strong Australian jobs data, GBP/JPY supported by the Tory party pledge to reduce the UK budget deficit, EUR/JPY traded higher with the EUR supported by improved risk appetite as equity markets rally and Asian equities hit a 17 month high. Recent JPY weakness has been attributed to speculation that the US and Japanese yield gap would widen as the BOJ is pressured to take action to boost Japan's domestic economy and the Fed is expected to hike rates as the US economy recovers. The unexpected decline in US December nonfarm payrolls clouds the outlook for Fed policy and reduces the likelihood of an earlier Fed rate hike. Diminished Fed rate hike speculation may limit JPY downside. JPY remains vulnerable to speculation that the BOJ may expand quantitative ease during Q1 2010 and to the risk of a possible downgrade of Japan's sovereign debt rating. JPY rallied to the day's highs in reaction to a statement from Japan's new Finance Minister Kan that he believes in the need for FX stability. Last week statements by Kan pressured the JPY as he appeared to indicate a preference for a weaker currency
This week's Japanese economic calendar includes the January 12th release of November current account expected at ¥1.110trln compared to ¥1.40trln last month. December money supply will also be released on the 12th expected unchanged at 0.1%. On January 14th CGPI for December will be released expected at 0.1% compared to 0.2% last month along with November machinery orders. The machinery orders are expected to rise by 8.5% compared to -4.5% last month.
Key technical levels to watch in USD/JPY include support at 91.53 the January 6th low with resistance at 93.67 the January 8th high.
EUR
EUR traded higher supported by diminished Fed rate hike speculation and improving risk appetite as global equity markets rally. At the end of 2009 the EUR was pressured by speculation improving US employment and economic outlook would encourage the Fed to hike rates earlier than had been expected. Friday's release of an unexpected decline in US December nonfarm payrolls clouds the outlook for Fed policy and will likely delay an earlier Fed rate hike. The Fed's Bullard said that interest rates are likely to stay low for quite some time. Global equity markets rallied in reaction to strong export and lending data from China. The rally in equity markets contributes to improving risk appetite and selling of the USD. EUR was also supported by report that French industrial production rose by 1.1% and ECB President Trichet warned that inflation expectations must remain anchored. Trichet's comments were seen as a bit hawkish. EUR rallied despite Moody's warning that Portugal's debt rating may be downgraded. This week's main focus will be Thursday's ECB meeting. Friday the EU reported that unemployment rate rose to an 11 year high of 10%. The worsening of the EU employment outlook suggests that the EU recovery will be weak and the ECB will remain on hold. EU growth prospects and sovereign debt risks should limit the EUR rebound.
This week's European calendar includes January 13th release of EU November industrial production expected at -0.3% compared to -0.6% last month. On January 14th German December CPI will be released expected unchanged at -0.1%. ECB policy meeting will be held on January 14th and no rate change is expected. On January 15th EU December CPI November trade balance will be released.
The technical outlook for the EUR is positive as the EUR rises above 1.4500. Expect EUR support at 1.4402 the January 11h low with resistance at 1.4610.
CHF
CHF traded higher supported by report of strong Swiss retail sales and broad dollar weakness sparked by diminished Fed rate hike speculation and improving optimism about the global recovery. Swiss November retail sales rose by 0.6%. Recent Swiss economic data has been mixed with consumer prices weaker than expected and unemployment rising .The Swiss unemployment rate rose to 4.4% from 4.2% in November. Weaker CPI and rising unemployment increase the risk of SNB intervention. CHF gains were limited by threat of intervention as SNB's Hildebrand reaffirmed commitment to take action to combat any excessive appreciation of the CHF versus EUR. Hildebrand said the SNB is monitoring foreign exchange markets closely. EUR/CHF is approaching the March level where the SNB intervened aggressively in the cross at 1.4750. Swiss producer and import prices for December will be released on Friday expected to rise by 0.1% compared to flat last month. Expect USD/CHF support at 0.9980 the December 4th low with resistance at 1.0385 the January 8th high.
GBP
GBP traded higher supported improving risk appetite as global equity markets rally and in reaction to the Tory pledge to reduce the UK budget deficit. Recent GBP weakness has been attributed to concern that the rising UK budget deficit could lead to a downgrade of UK sovereign debt rating. The UK will hold a national election sometime between March and June 3rd. The latest election polls show that the Tories may be moving towards gaining a majority control of parliament. Tory leaders pledged to take more aggressive action to reduce the deficit than the Labor Party. GBP was also supported by the Times report which says that UK gilt dealers do not expect the UK rating downgrade and in reaction to a Sunday Times article which says that City is confident the UK will avoid a ratings downgrade. GBP rallied despite the release of Confederation of British industry survey which says that financial service companies are becoming more pessimistic about the outlook for UK business growth. There was little reaction to the report in the Times that Kaletsky expects USD to rally in 2010 versus the EUR and GBP. Last week's UK economic data was mixed with consumer confidence falling, mortgage approvals and manufacturing PMI posting improvement and inflation rising. The BOE elected to hold monetary policy and the current level of asset purchases unchanged as expected. GBP remains vulnerable to concern about UK debt outlook and election uncertainty.
This week's UK economic calendar includes the January 12th release of December RIC's house prices and November trade balance. The trade balance is expected at -7bln compared to -7.1bln last month On January 13th of November industrial production is due for release along with NIESR GDP estimate for December. Industrial production is expected at 0.3%.
The technical outlook for GBP is positive as GBP rallies above 1.6100. Expect near-term support at 1.5957 the January 8th low with resistance at 1.6242 the January 4th high.
CAD
CAD traded mixed initially supported by a surge in price of gold, higher crude prices, improving risk appetite as equity markets firm in reaction to strong economic data from China. CAD was also supported by strong Canadian housing starts data. Canada's housing starts rose 174.5k in December; a reading 171.4k was expected. Building permits however declined by 4.6% in November, a reading of -3.3% was expected. CAD gains were limited by selling in cross trade to Europe and Australia as weak US and Canadian employment data released Friday generates concern about the recovery in North American economies. Canada shed 2,600 jobs in December and the unemployment rate was unchanged at 8.5%. Employment growth was expected at 20k. In addition, last week Canada reported a sharp contraction in Ivey PMI.
This weeks Canadian economic calendar includes the January 12th release of November New Housing Price Index expected unchanged at 0.3%.
The technical outlook for CAD is positive as USD/CAD trades below 1.0400. Look for near-term support at 1.0207 the October 15th low with resistance at 1.0517 the January 4th high.
AUD
AUD traded higher supported by strong economic data from Australia and China, a surge in metals prices and firmer Asian equity market trade. Australia reported that ANZ December jobs ads rose by 6%. The strong job ads report will revive RBA rate hike speculation and bodes well for this week's release of Australia's unemployment report. China's exports rose a record 17.7%. The rise in China's exports fueled demand for Asian equities and optimism about the global recovery. The strong Chinese data may also encourage China to hike interest rates. Last week Australia reported strong retail and vehicle sales, improvement in its trade deficit and rising building approvals. These reports suggest that the Australian domestic economy has weathered recent RBA rate hikes and puts a February RBA rate hike back on the radar screen. At the end of the AUD came under significant pressure partly due to diminished speculation that the RBA would hike rates in February. Strong Australian economic data encourages speculation that the RBA may hike rates in February. Financial futures are pricing the odds of a February RBA rate hike at 50/50. Bloomberg reports that the AUD is expected to trade at parity with the USD in 2010 reflecting improvement in the global economy and rising Australian interest rates. Focus turns to this week's release of Australian employment data.
This week's Australian calendar includes the January 11th release of ANZ job ads expected at 4% compared to 5.2% last month. On January 12th November housing finance plan would be released expected at 2% compared to -1.5% last month. On January 14th December unemployment will be released the unemployment rate is expected to fall by 0.1% to 5.6% from 5.7% with employment growth at 20k s compared to 31.2k is last month.
The technical outlook for the AUD is positive as the AUD trades above 9200. Expect AUD support at 9170 with resistance at 9378 the November 17th high.
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