The release of the FOMC Minutes yesterday presented a mixed picture for the FX markets; on the one hand, the suggestions that the door should be kept open for further asset purchases beyond March gave rise to negative USD sentiment, but at the same time, a number of hawks on the committee pointed to the risk that such action could be highly inflationary (a situation that would lend itself to USD strength). Between the two scenarios, FX markets predominantly focused on the dovish arguments, and the USD weakened modestly against its major currency peers immediately after the release (EURUSD jumped from 1.4405 to 1.4435); however the overnight weakness in Asian stock markets has reversed these losses. One of the few currencies that has managed to remain higher on the day vs. the USD at the start of the European session is AUD; after Retail Sales for November smashed estimates, growing 1.4% MoM (against forecasts for a 0.3% gain), and with revisions higher to the month prior (to 0.4% from 0.3%). AUDUSD is now above the key 0.9185 resistance (currently trading 0.9200), and AUDJPY has hits 15-month highs at 85.55. The latter move was helped by comments from Japan's newly appointed Finance Minister Kan that he would cooperate with the BoJ in order to achieve a weaker JPY, and added further that many Japanese firms favour USDJPY around 95 levels - around 250 pips higher than current levels.
Coming up, it is an important morning for European data with Consumer Confidence (Dec) and Retail Sales (Nov) due. There are expected to be slight improvements in Consumer Confidence (exp: -16, prev: -17), but Retail Sales are expected to remain subdued at 0.0% MoM - the same as the reading in the previous month. Given that this morning's German Retail Sales data has already been released, and was distinctly disappointing (-1.1% MoM vs. +0.3% expected, prior month revised lower from 0.5% to 0.0%), we may well see a downside surprise compared to analyst forecasts. EURUSD remains within consolidation mode for the time being, and looking at the daily chart we see a flag pattern emerging with downside support coming in around 1.4280 levels. A daily close below here would suggest a continuation of the move lower (after the break of the 12-month uptrend on 4th Dec), and would open up the downside for a move towards 1.4000 levels.
Today's BoE rate decision is not expected to produce any noteworthy developments; with forecasts for no change in rates from their current 0.50% levels, and no increase to the asset purchase target (currently GBP200bn). This afternoon's docket includes US claims data, and Canadian Ivey PMI.