USD - This week's trading could get off to a slow start with US markets out for Martin Luther King holiday yesterday. Markets, however, are expected to remain volatile given the focus on Eurozone sovereign risk as well as changing interest rate expectations on the back of recent data trends. The stream of data releases kick off today with New York Fed's manufacturing index. The release came in 11.92, below a forecast of 12.50. The NAHB index came in at 17 vs. a forecast of 17. Data for the housing market is expected to continue to send mixed signals. On the downside, weak figures for both housing starts and building permits are anticipated. This can, however, by and large be attributed to last month's poor weather conditions. Furthermore, the positive trend in existing home sales should continue. This could encourage some optimism in the otherwise gloomy housing market. Finally, Philadelphia Fed President, Charles Plosser, will give another speech this week. He is the most likely candidate for a dissenter at the January FOMC meeting, but his comments last week suggest that he is not yet ready to vote against the FOMC statement.
EUR - The EUR appreciated to a one-month high against the USD on speculation efforts by the region's policy makers to prevent the sovereign debt crisis from deepening may succeed. Finance ministers from six countries with AAA credit met to discuss how to best use the 750 billion euro rescue fund, rather than setting aside some of the money as collateral. They ruled out boosting the size of the fund for now. Leading indicators in the Eurozone, meanwhile, include the German ZEW and Ifo surveys for January, as well as this month's French business climate index. The Ifo index hit a record high in December, with the ZEW also coming in better than expected. Markets will be looking to this month's survey data for fresh confirmation that Europe's current fiscal crisis is not hitting sentiment in the Eurozone's largest economy.
GBP - Despite a nice rally over the past week, no major currency is performing worse than the pound since the start of August - weakening against all 16 highly traded currencies over that period. The BoE is limited as to what they can do as Prime Minister David Cameron's budget cuts slow growth while inflation accelerates. Last week, PPI came in a much stronger than expected 3.4% versus expected 1.7% m/m and today CPI came in at 1.0% versus 0.7% expected m/m. This confirms the dilemma facing the BoE, and most forecasters are pointing toward an even weaker sterling by the end of 2011, with some forecasts looking for as low as 1.3500.
JPY - The yen was quiet falling back from 83 levels after failing to gain a foothold above the level. Support is found on dips with yen crosses supporting the currency over the last week. Ongoing JPY strength is attributed by net inflows into the currency related to the Japanese trade surplus, uncertainty in the rest of the world, the expected monetary policy in the US and the diversification of foreign reserves in other countries away from the US dollar and euro.
CAD - The CAD begins the week well supported near its strongest levels against the USD since May 2008. However, the loonie's ascent has paused, at least momentarily, after the Bank of Canada held interest rates steady at 1%. BoC Governor, Mark Carney, went on to say that future interest rate hikes would be carefully considered because strength in the loonie, which would be further exacerbated by tighter monetary policy, is threatening to slow Canada's economic recovery. Rising commodity prices, steady economic growth, and an economic recovery that appears to be gaining traction in Canada's major trading partner, the US, will all provide support for the CAD in the near term, with a test of the currency's recent highs to be expected.
MXN - The Mexican peso continued to strengthen, rising over 2% against the dollar since last week as economic indicators signaled velocity changes in activity continue to develop within critical sectors of Mexico's economy. IGAE indicated a revised growth of 5.0% vs. the forecasted 4.3% for October, identifying strong tertiary activities in the region. Industrial production for November posted a gain of 5.3% vs. the previous 3.7% and 3.8% eyed, while final trade balance posted a decline of only - 105m vs the previous -814m.
AUD - The AUD starts up 0.5% from where it ended last week on strong economic data out of the country's main export market, China. A report over the weekend quoted an anonymous Chinese official stating that Chinese GDP grew 10.1% last year, up from 9.2% in 2009 and besting expectations of single-digit growth. If the Chinese economy can maintain its impressive expansion, broad support will continue for the AUD with more than sufficient demand for the nation's raw goods exports. The outlook for the Australian economy has also improved as floodwaters recede in Queensland, Australia's coal mining hub. The total cost of the floods has been estimated at as high as $20 billion, but sentiment has improved as it appears the worst is likely over. With the AUD's high yield, it will likely again test parity with the USD in the immediate future with markets generally upbeat about the global economic recovery.