- Mixed, Bernanke expected to be confirmed for second term, US existing home sales fall sharply
- Lower, BOJ may be prepared to increase purchases of government debt and ease monetary policy
- Higher, Nowotny says ECB will use steady hand approach to withdraw liquidity
- Higher, Hildebrand says SNB to prevent excessive CHF appreciation
- Higher, BOE to keep its emergency asset purchase plan under review
- AUD & CAD higher, China pledge's to maintain loose monetary policy
Overview
USD traded lower Monday pressured by speculation that Bernanke will be confirmed for a second term as Fed chairman and in reaction to weak US housing data. The Bernanke news helped to boost risk appetite and reduce safe haven demand for the USD and JPY. JPY was also pressured by BOJ ease speculation as Bloomberg reports that the BOJ may be willing to increase its purchase of bonds in an effort to boost the Japanese economy and contain JPY strength. EUR rallied supported by a statement from the ECB's Nowotny that the ECB will implement a steady hand approach to withdraw liquidity and in reaction to report of good demand for today's Greek bond auction. GBP edged higher supported by improving risk sentiment and short covering ahead of Tuesday's release of UK advanced Q4 GDP. A statement from Chinese officials that monetary policy will remain loose generated demand for commodity currencies. Today's US economic data was mixed with US existing home sales declining sharply and Dallas Fed manufacturing index posting improvement. The drop in US existing home sales partly reflects uncertainty about the US tax credit for first-time homebuyers. NABE survey says that businesses are expected to boost hiring and capital spending in the first half of the year as the economy posts slow recovery. The USD is expected to consolidate recent gains due to concern about the strength of the US recovery and the impact of new banking regulations proposed by President Barack Obama last week. Focus turns to this week's BOJ and FOMC policy meetings, the president's State of the Union address Wednesday and advanced Q4 GDP reports in the UK and US.
Today's US data:
December existing home sales declined to 5.45 mln units, a reading of 5.90 mln units was expected. The Dallas Fed Manufacturing Index was 8.3 in January compared to 3.2 December.
Upcoming US data:
On January 26th November Case Shiller house price index will be released expected at -5.1 compared to -7.3 last month along with January consumer confidence expected at 53.5 compared to 52.9 last month. On January 27th, December new home sales will be released expected at 370k compared to 355k last month. On January 28th December durable goods will be released expected 2% compared to 0.2% last month along with initial jobless claims for the week ending 01/23 expected at 450k compared to 482k last week. On January 29th advanced Q4 GDP will be released along with January Chicago PMI and final January University of Michigan. The Q4 GDP is expected to have risen by 4.5% compared to 2.2% in the third quarter. Chicago PMI's expected 57.5 compared to 58.7 last month and the University of Michigan sentiment is expected unchanged at 73.
JPY
JPY traded lower pressured by improving risk sentiment sparked by a report that Fed Chairman Bernanke will be confirmed for a second term and in reaction to BOJ ease speculation. Equity markets were hit hard late last week in reaction to growing opposition to the confirmation of the Fed chairman to a second term. US equities rallied Monday partly in reaction to US press and White House optimism that Bernanke will be confirmed by the Senate. Bloomberg news reports that BOJ officials may be considering increasing purchase of government debt to boost the Japanese recovery and limit JPY strength. BOJ will hold a policy meeting Tuesday and expected to hold rates steady but leave the door open for additional monetary ease if the economy weakens or JPY posts excessive gains. Last week's Japanese economic data raised concerns about the Japanese recovery as Japan reported drop in consumer confidence and weaker retail service demand. Last week JPY rallied as stocks tumbled.
This week's Japanese economic calendar includes January 27th release of December trade balance expected at ¥590bln compared to ¥374 bln last month. On January 28th December retail sales will be released expected to rise by 0.3% compared to 0.2% last month. On January 29th of December CPI will be released expected unchanged at -0.2%. December household spending, unemployment, industrial output housing starts and construction orders will also be released on January 29th. The unemployment rate is expected to rise by 0.1% to 5.3%. Industrial output is expected to rise by 2.5% compared to 2.2% last month. Housing starts are expected to rise by 2% compared to 4.7% last month. Construction orders are expected to fall by 24% compared to 11.6% last month.
Key technical levels to watch in USD/JPY include support at 89.78 the January 25th low with resistance at 91.88 the January 21st high.
EUR
EUR traded mixed initially supported by comments from the ECB's Nowotny and improving risk sentiment sparked by the Bernanke news. Nowotny said that the economies of Eastern Europe are improving faster than expected and that the ECB would use a steady hand approach on withdrawal of liquidity. EUR was also supported by report of good demand for today's Greek bond auction and a statement from Greek officials that they have no intentions of leaving the European monetary Union. ECB's Stark said that the EU will not bail out Greece. EUR gains were limited by report that German GFK February consumer confidence declined for the fourth month in a row to 3.2 from 3.4 last month. The continued decline in German consumer confidence reflects rising unemployment and continued tight credit conditions in Germany. Last week's EU economic data was mixed with German business confidence index declining and EU industrial orders rising as export sales gain. The next major focus for EUR trade will be the February 4th ECB policy meeting. The ECB is expected to hold monetary policy unchanged and continued to gradually withdraw liquidity. Focus turns to Tuesday's release of the German IFO business confidence index and EU inflation data later in the week.
This week's EU economic calendar includes January 26th release the German IFO index expected at 95.1 compared to 94.7 last month. On January 27th German January CPI will be released expected at 1% compared to 0.8% last month. On January 28th German December unemployment will be released expected at 8.2% compared to 8.1% last month along with EU January business climate expected at -1.1 compared to -1.2 last month. On January 29th EU December M3 will be released expected at -0.5 and 0.2% last month along with January CPI expected at 1.2% compared to 0.9% last month.
The technical outlook for the EUR is negative as the EUR trades below 1.4200. Expect EUR support at 1.4030 the January 21st low with resistance at 1.4335 the January 18th high.
GBP
GBP traded higher supported by short covering sparked by a rebound in equity markets ahead of tomorrow's release of UK advance Q4 GDP. GBP outperformed last week partly in reaction to report of higher than expected December consumer price index. The GBP outperformance was impressive in light of the weakness in global equity markets late last week. The CPI rise may bring the timeframe for the end of BOE asset purchase plan forward. UK December CPI was reported at 2.9% and the CPI is approaching the high end of the BOE's inflation target range. The BOE's inflation target is 1 to 3%. BOE officials indicated that the asset purchase plan will be under review. Earlier in the month of BOE Sentance indicated that the BOE may need to pause its asset purchase plan consider the possibility of hiking rates this year. There was limited reaction to the Bloomberg report which suggests that GBP remains vulnerable no matter who wins this year's UK election because neither party is likely to have the political numbers to confront the UK deficit. UK election polls showed mixed results with one poll indicating that the Tories will regain the majority of parliament and another poll suggesting that the Tories will fall short of majority resulting in a hung parliament. A hung parliament would likely be the most negative result for GBP as it would prevent any significant action to reduce UK deficit. GBP has been supported by optimism that the UK will come up with a plan to tackle its budget deficit and in reaction to speculation that the BOE may pause its asset purchase program as the UK economy recovers. Focus turns to Tuesday's release of UK Q4 advance GDP. The GDP report is expected to confirm that the UK recession has ended and the economy is expanding.
This weeks UK economic calendar includes the January 26th release of Q4 GDP expected at 0.4% compared to -0.2% last quarter. On January 27th January CBI distributive trades will be released expected at 8 compared to 13 last month. On January 29th, January Nationwide home price index will be released.
The technical outlook for GBP is mixed as GBP holds above 1.5900. Expect near-term support at 1.5900 the January 7th low with resistance at 1.6313 the January 21st high.
CHF
CHF re-emerged as a competitor for risk flows gaining last week versus the EUR and high-yield currencies as equity markets tumble and risk appetite declined. The USD and JPY however were the primary beneficiaries of the spike in risk aversion last week which was sparked by uncertainty about the Bernanke's confirmation to a second term as Fed chairman and president Obama's proposed new banking regulation measures. CHF edged higher Monday as equity markets recover in reaction to report that Bernanke is likely to be reconfirmed as Fed chairman later this week. CHF gains versus the EUR prompted a statement from the SNB chairman Hildebrand that the SNB will resolutely prevent excessive CHF appreciation as long as there are deflationary risks. The unwind of carry trades sparked by weaker equity market trade may make SNB intervention less effective. This week's Swiss economic calendar includes Tuesday's release of UBS consumption indicator for December expected at 1.3 compared to 1.2 last month. On Friday January KOF indicator will be released expected at 1.71 compared to 1.68 last month. Expect USD/CHF support at 1.0230 the January 19th low with resistance at 1.0509 the December 19th high.
CAD
CAD traded mixed to lower as the initial support from the Bernanke confirmation news fades. CAD traded sharply lower last week pressured by deleveraging sparked by weaker equity market trade and China's tightening. Equity markets were hit by concern that Fed Chairman Bernanke may not be reconfirmed for a second term and in reaction to President Obama's proposals for new regulations for US banks. Earlier in the month China indicated that it would begin to take measures to curb lending. China's tightening sparked fears that the global recovery could be at risk. Monday, Chinese officials indicated that they plan to maintain loose monetary policy and this reassurance helped to stabilize global equity markets and commodity currencies. The BOC elected to hold monetary policy steady and monetary policy is likely to remain on hold as Canada reports a larger than expected decline in inflation. There were no major Canadian economic reports released in today's trade and reaction was limited to report a sharp drop in US existing home sales. The drop in US existing home sales was widely expected and the data will likely keep Fed rates at a low level for an extended period. In addition, CAD benefits from demand for oil settlement payments. CAD price direction remains to the outlook for commodities and equities. Trade will be watching closely whether China takes additional steps to reduce liquidity. Focus turns to Canada's GDP due for release later in the week.
This week's Canadian economic calendar includes Friday's release of December producer price index and GDP. December IPPI is expected at 0.4% and RMPI is expected at 1.2%. November GDP is expected unchanged at 0.2%
The technical outlook for CAD is negative as USD/CAD trades above 1.0600. Look for near-term support at 1.0438 the January 21st low with resistance at 1.0700 the December 21st high.
AUD
AUD traded higher supported by report that China will maintain loose monetary policy and in reaction to an uptick risk appetite as equity markets rebound in reaction to report that Fed Chairman Bernanke is likely to be confirmed for a second term as Fed chairman. AUD gains were limited by report of weaker that expected Q4 PPI. AUD traded lower the last week pressured by spike in risk aversion as global equity markets weakened in reaction to China's tightening of liquidity uncertainty about Bernanke's job tenure and President Obama's proposal of new US bank regulations. AUD was pressured by unwind of carry trades. Last week Australia economic data was relatively positive with report of strong auto sales. The strong auto sales data encourages speculation that the RBA will hike interest rates in February. Earlier in the month Australia reported a sharp improvement in employment. The improvement in Australian employment has encouraged speculation that the RBA will hike rates in February. Australia's December unemployment rate declined to 5.5%, a reading of 5.7% was expected. Employment growth rose by 35.2k, the employment growth figure was expected to rise by 10k. Focus turns to Tuesday's release of Australian CPI report. The CPI report will be a key factor in the RBA's interest rate calculus. A weaker than expected CPI report would raise doubts about a February RBA rate hike. Today's weaker than expected Australian PPI may be a prelude to a weaker CPI report. Next RBA policy meeting is scheduled for February 2nd.
This week's Australian economic calendar includes a January the 27th release of Q4 CPI expected at 0.4% compared to 1% last quarter. On January 29th December private sector credit will be released expected at 1.1% compared to0.8% last month.
The technical outlook for the AUD is mixed as the AUD holds above 9000. Expect AUD support at 8992 the January 22nd low with resistance at 9147 the January 21st high.
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