FX Market Watch - 04/01/2010

By IBTimes Staff Reporter | January 03 2010 8:08 PM

EUR/USD opened lower trading in a limited range during the shortened holiday week. The pair made a weekly high on Tuesday trading up to 1.4457 after release of U.S. housing data from S&P/Case-Shiller showed a 0.4% rise to a seasonally-adjusted 145.36 in October. The index was off 7.3% versus October of last year, slightly worse that the market's -7% Y/Y consensus. Also on Tuesday, European Central Bank Governing Council member and Luxembourg Central Bank head Yves Mersch wrote in a New Year's message, In 2010, the economy of the Euro area should continue to grow, but recovery looks moderate and precarious. He also forecast economic growth in the Eurozone to be between 1.4% and 2.4% in 2010. On Wednesday, the pair made a weekly low of 1.4273 after the Chicago PMI rose to 60 in December from 56.1 in November. This was far better than the expected 55.4 level expected and indicated continued expansion in the Midwestern U.S. economy. The pair neared the close under pressure on the announcement that U.S. Jobless Claims fell by 22,000 to 432K, significantly better than the 461K expected and the best level seen over 2009. EUR/USD closed the week and the year at 1.4320, off just 55 pips or 0.4% from the previous weekly close.

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USD/JPY gained ground last week, initially rallying from a low of 91.17 seen on Monday. Finance Minister Fujii was hospitalized due to fatigue from working strenuously on the 92.3 trillion Yen budget that the Hatoyama government announced for the next financial year starting in April 2010. On Wednesday, Japan PMI improved to 53.8 in December from 52.3 the previous month. Minutes out last week from the BOJ's latest policy board meeting stated that its members agreed The bank would maintain its stance of responding promptly to changes in the market situation. Despite that news, the rate continued higher, improving in thin trading on Thursday's Japanese bank holiday to a weekly high of 93.13 after positive U.S. jobless claims data, before backing off and closing both the week and the year at 92.95, up 1.5% from the previous week close.

GBP/USD had a shorted trading week with U.K. banks closed on both Monday and Friday. The pair started the week on a strong note after news on Tuesday that U.K Housing Equity Withdrawals had fallen 4.9 Billion, a considerable improvement over the previous 6.9 Billion drop and also better than the market consensus of a fall of 6.3 Billion. In addition, the announcement that U.K. Housing Prices had risen 0.4% in December and 5.9% Y/Y, as expected did not hurt the rate. Furthermore, the BOE is now widely expected to keep monetary policy stable in the near-term, although quantitative easing might continue if necessary. In addition, the BOE's Credit Conditions Survey released on New Year's Eve indicated that U.K. creditors are expecting credit conditions to improve in the first quarter of 2010. The pair rallied sharply off Wednesday's weekly low of 1.5831, eventually rising to a weekly high of 1.6233 on Thursday. Many traders reported that year-end short covering and the unwinding of strategic positions exaggerated Sterling's upward move. Cable ended the week and the year at 1.6155, up 1% on the week.

AUD/USD opened last week near its weekly lows of 0.8826 and then firmed consistently to an intermediate high of 0.8992 on Tuesday. The rate then retraced downwards to 0.8901 on Wednesday, but eventually rallied to a New Year's Eve high of 0.9008 after news broke on Thursday that Private Sector Credit in Australia had risen by 0.1% in November, in line with market expectations and still showing positive credit growth in the economy. The year-end rally in metals also boosted the Aussie, as copper traded at its highest level in 2009. AUD/USD then came off slightly to close the week and the year at 0.8980, 1.7% higher than the previous weekly close.

USD/CAD traded higher last week with the Canadian Dollar aided by strong metal prices and improving world equity markets. In the absence of any economic data from Canada last week and bank holidays on Monday and Friday, the pair showed considerable resilience despite positive U.S. economic data. USD/CAD traded from its weekly low of 1.0365 on Tuesday to its weekly high of 1.0576 on Wednesday before coming off to close the week and the year at 1.0520, up just 0.3% on the week.

NZD/USD gained considerable ground last week, primarily on technical factors, rallying consistently from a weekly low of 0.7024 seen on Monday. The pair continued higher on Wednesday after the RBNZ announced that the N.Z. M3 money supply had declined 2% Y/Y in November, versus a 0.8% growth in the previous month. Furthermore, November's N.Z. M2 Money Supply fell 3.9% Y/Y versus the 1.7% increase in the preceding month. Also, M1 Money Supply grew 0.7%, less than the 2.8% increase seen last month. The pair also benefitted from higher metal prices and made a weekly high of 0.7287 on Thursday before closing the week and the year at 0.7224, up 2.3% on the week.

USD : The first week of 2010 starts the year off with a bang in terms of U.S. economic data releases. The action begins on Sunday with speeches by FOMC member Kohn and Fed Chairman Bernanke at the AEA's annual meeting in Atlanta. Look for Construction Spending (-0.4%M/M) and the ISM Manufacturing PMI (54.1) on Monday, followed on Tuesday by a speech by Kansas Fed President Hoenig in Atlanta, Pending Home Sales (-2.5%M/M) and Factory Orders (0.5%M/M). Wednesday has the ADP Non-Farm Employment Change (-74K) due out, as well as ISM Non-Manufacturing PMI (50.5) and the minutes of the last FOMC meeting. FOMC Members Bullard and Hoenig will speak in Shanghai and Kansas City respectively on Thursday, and Unemployment Claims (449K) is due out. Friday will be the weekly highlight with the key Non-Farm Payrolls (-10K) and the U.S. Unemployment Rate (10.1%) scheduled for release, plus a speech by FOMC Member Rosengren in Connecticut.

AUD : The Australian economic calendar is beginning to show some activity this week, beginning on Monday with the release of the AIG Manufacturing Index (last 51.2) and Commodity Prices (last -25.3Y/Y). Tuesday has the HIA New Home Sales (last -6.0%M/M) tentatively scheduled, while Wednesday has the AIG Services Index (last 52.5) and Building Approvals (3.1%M/M) due out. Look for Thursday to be the highlight with Retail Sales (0.4%M/M) and the Trade Balance (-1.79B) on board. Friday ends the week with AIG Construction Index (last 47.6). Technically, AUD/USD's strength last week took it past key resistance at 0.8911 which now provides support, along with the 0.8856, 0.8808 and 0.8733 levels. Initial resistance is seen at 0.9021, then at 0.9174/91 and 0.9321.

NZD : The upcoming economic week is very quiet in New Zealand, starting with a bank holiday on Monday. The peace will likely only be broken with the release of the N.Z. Trade Balance on Thursday (-397M). From a technical perspective, last week's notable strength in NZD/USD makes it seem ready to resume its long-term uptrend, which would be indicated by a move beyond 0.7317 Dec 10th high, and confirmed by a break of resistance first at 0.7522 and then at 0.7633. Look for the 61.8% Fibonacci retracement of the move from 0.8212 to 0.4892 at 0.6968 to now hold. Additional support is seen at 0.7210, 0.7124 and 0.7069.

GBP : This week will see some key economic releases out in the United Kingdom, starting on Monday with the Halifax House Price Index (0.6%M/M), Manufacturing PMI (52.1) and Net Lending to Individuals (0.6BM/M). Tuesday only has Construction PMI (47.6) scheduled, and Wednesday has Nationwide Consumer Confidence (72) and Services PMI (56.8). Thursday will be the likely highlight with the announcement of the BOE's asset purchase facility (200B), the Monetary Policy Committee's Rate Statement and the Official Bank Rate (unchanged at 0.5%). Friday rounds out the week with PPI (-0.2%M/M Input and 0.2%M/M Output) scheduled for release. On the technical front, GBP/USD is bouncing off its most recent significant 1.5832 low within its broad consolidation band of 1.5706 to 1.7041. Additional support shows at 1.6048, while resistance to the topside is seen at 1.6235/48, 1.6340 and 1.6410.

EUR : The Eurozone also has an active week ahead, starting with Monday's release of the E.U. Final Manufacturing PMI (51.6) and the Sentix Investor Confidence Index (-3.4). Look for German Unemployment (6K) and the E.U. CPI (0.9%) on Tuesday, and although Wednesday is a bank holiday in Italy, E.U. Industrial Orders (-0.9%M/M) will be released along with PPI (0.2%M/M). Thursday has Retail Sales (0%M/M), Consumer Confidence (-16) and German Factory Orders (1.6%M/M) due out, while Friday is the week's highlight with German Retail Sales (0.4%M/M), Trade (12.2B) and Industrial Production (1.1%), along with French Trade (-3.9B) and the key E.U. Unemployment Rate (9.9%) and Final GDP (0.4%Q/Q). Technically, although EUR/USD has broken its short-term downtrend, another test of the 1.4217 Dec 22nd low cannot be ruled out. Additional support is found at 1.4273 and 1.4234. Resistance is seen at 1.4420/40, 1.4503, 1.4590 and in the 1.4658/85 region.

JPY : The economic week ahead is extremely light in Japan, with only the Monetary Base (3.5%Y/Y) to be released on Tuesday and the Eco Watcher's Survey (last 33.9) and the Leading Economic Index (91.4%) due out on Friday. With respect to the technical picture, USD/JPY has extended its short-term up-trend seen since December 9th, even to the point of breaking through key resistance at 92.32 which now becomes support. Additional resistance is seen at 93.30 and 97.75. Initial support is seen at 91.90 and 91.12, and below that at 88.88 and 87.11/35.

CAD : Canada has a relatively light data release week coming up, starting on Tuesday with the release of the Raw Material Price Index (1.2%M/M) and the Industrial Product Price Index (0.5%M/M) that will show if inflation is becoming an issue in Canada. Thursday has the Ivey Purchasing Manager's Index (52.5), while Friday will be the highlight with the key Employment Change (20.2K) and Unemployment Rate (8.5%) releases. Although USD/CAD extended the base of its recent range down to 1.0365 last week, USD/CAD continues to trade between that level and 1.0747 as part of what appears to be a bullish flag pattern on the daily chart with a ~150 pip breakout objective. Nevertheless, a possible Head and Shoulders top on the hourly chart warns of another test of the range bottom. Currently trading near support at 1.0462, additional support is seen at 1.0405 and the range low of 1.0365. Resistance shows at 1.0532/38, 1.0559/86 and 1.0617/33.