Movements in Euro crosses continue to drive the currency markets. While dollar retreats mildly after Fed warned of 'distinct possibility of a prolonged contraction' in the US economy, overall outlook of the greenback is mixed. Note that dollar's weakness is mainly seen against Sterling, Aussie and Canadian dollar. Technically speaking, intraday levels in EUR/USD, USD/JPY and USD/CHF are still holding which supports further upside in the greenback. On the other hand, developments in AUD/USD, USD/CAD and to a lesser extent GBP/USD, are supporting further downside in dollar against these currencies. The movements in these pairs are heavily influenced by directions in respective Euro crosses.
The most important development to note today should be in Euro crosses. In particular, EUR/GBP is now pressing 0.9 psychological support (with 50% retracement of 0.8234 to 0.9798 at 0.9016) and decisive break of which will build up the case that 0.9799 is a medium term top and put focus down to trend line support at 0.8741. A break above 0.9304 is needed to indicate fall from 0.9799 has completed or risk will remain on the downside. EUR/AUD recovers mildly but is now very close to an important support level of 1.8481.
Dollar index turns into sideway trading after surging to 84.01. While intraday outlook is turned neutral for the moment, consolidation should be relatively brief as long as 82.55 minor support holds and recent rally should resume to 161.8% projection of 77.69 to 81.62 from 79.63 at 85.99 first. Break will bring retest of 88.46 high. Below 82.55 will put near term trend line support at 81.63 into focus.
The Fed released the minutes for FOMC meeting on Dec 15-16 yesterday. The officials believe the economy will continue to be weak for some time and there's substantial downside risk on economic growth. The minutes reinforced application of various quantitative measures and said that the Fed's balance sheet 'would need to be maintained at a high level' as there is 'distinct possibility of a prolonged contraction'.
New Zealand's trade deficit narrowed to NZD 520M in November, better than consensus of NZD 775 M and the revised NZD996M in October, because growth in imports (+5.2% yoy) dropped more rapidly than exports (+9.4% yoy) due to depreciation in NZD. In nominal terms, imports and exports came in at NZD 4.21B (consensus: NZD 4.54B, October: NZD 4.82B) and NZD 3.69B (consensus: NZD 3.71B, October: NZD 3.83B), respectively.
In Australia, retail sales showed improvement and rose 0.4% mom in November after RBA's rate cuts and decline in commodity prices. The better-than-expected reading (consensus: -0.4%, October: 1%) was brought by increase in food spending which added 0.7% during the month. However, other components such as sales at department stores and spending on clothing dropped.
Looking ahead, Germany will report unemployment level in December which is expected to have increased 10 K, with unemployment rate standing at 7.5%. The Eurozone's PPI in November probably fell 0.7% mom after dropping 0.8% mom in November. December's ADP employment in the US is anticipated to show -450K private job loss. Since November, ADP has published employment data using a new way of calculation which should track more closely the non-farm payroll data (December data to be released Friday).