Markets were pretty rangebound last week, hanving been consolditaing following the previous week's moves. Overall, the dollar was slightly weaker against major currencies (except for the yen). However, it did rally against gold which dropped unexpectedly $20 last Wednesday afternoon. Also, equities continued to rally although the momentum of their move higher has slowed down.
The main cause to last week's moves was a lack of high impact news releases. Also, when news was released the results were often ambiguous. Case in point was the better than expected Trade Balance numbers last Wednesday. On the surface, they appeared to be positive as the trade gap between US exports to imports narrowed on a decline in imports. However, Forex traders were unimpressed with the decresease that took place in exports.
Looking ahead, this week won't have any shortage of news events as US PPI and CPI are released along with the FED's FOMC Meeting on Tuesday. Forex traders aren't expecting the FED to raise rates at this meeting, however they will be looking for any change in the language of the statement. In the past, the FED has used the words extended period to signify how long interest rates will remain low. If this phrase changes, it may indicate that they are gearing the capital markets for a possible rate increase sooner rather then later.
Following the successful sale of new Greek debt, sentiment has been improving towards the Euro. In addition, the Greek Finance Minister has been traveling to various global finance centers to meet with investors to calm them about Greece's prospects. As such, the EURUSD rallied last week and was able to bounce off of its 1.3540 lows to trade back above 1.3700.
This week, the German ZEW Economic Survey will be released on Tuesday. The number has been on a steady decline the last few months as business leaders and investors have become increasingly pessimistic about the eurozone's economic recovery. Traders will be watching to see if the negative sentiment has bottomed. If so, this could lead to strength in the Euro as it could signal that the flight of funds out of the Euro to safe havens may be over.
Trading in the pound last week remained difficult as it has bounced around widely based on the release of new election polls, economic news and statements from government officials. It appears that the UK is headed for a hung Parliament but current officials are putting the budget and the UK's credit ratings to the forefront of importance.
Regarding the latter, Prime Minister Gordon Brown spoke about potential budget cuts that will help ease the country's debt load. Overall, even with a surprisingly poor Manufacturing Production release (the manufacturing sector has been one of the UK's better performers), the pound managed to hold steady and held way above its 2010 lows.
Looking ahead, MOC Minutes will be released on Wednesday. Because the Bank of England refrained from issuing a descript statement at their previous meeting, the minutes will be highly anticipated - they will shed light on the voting results of the BoE members and may offer opinions of the BoE regarding the UK's recovery and inflation.
The yen remained weaker last week as Forex traders continue to believe the Bank of Japan will use monetary policies to weaken the yen. Adding to the speculation was comments from Japanese Prime Minister Yukio Hatoyama of his preference for a weaker yen. Nonetheless, much of the yen selling continues to be executed by non Japanese traders.
Japanese traders are more skeptical towards a possible BoJ intervention, as the central bank prefers to limit their involvement in the market place. On Wednesday, we should get a clearer picture of the situation as the Bank of Japan is scheduled to hold its official press conference.