USD - The US returns from the Thanksgiving holiday with early reports suggesting that Black Friday, the busiest shopping day of the year, proved robust. According to ShopperTraK, sales rose an estimated 6.6% to total of $52.4 billion on Black Friday, providing another sign that the US economy is holding up relatively well. There is a heavy data scheduled this week. Nevertheless, this week's trading is likely to be centered on the Eurozone's sovereign debt problems, with the euro remaining under pressure versus the dollar and yen as a result. This morning new home sales were reported slightly up at 307K or 1.3% MoM. ISM manufacturing is expected to rise slightly to 52 in November (consensus 51.5) from 50.8 in October. GDP growth expected at 2.5-3% in Q4 also points to a higher ISM reading. Non-farm payrolls are expected to continue to show decent increases as employment indicators have pointed to an improvement recently (ISM manufacturing and service, jobless claims). Expect a rise in total payrolls of 115k (consensus 120k) and in private payrolls of 135k (consensus 145k). The unemployment rate is likely to stay unchanged at 9.0% after falling in October to 9.0% from 9.1%. Other indicators of interest next week will be house prices, Chicago PMI and vehicle sales. Concerns about the Eurozone and the currency are intensifying as yields on Eurozone bonds continue to spiral upwards. With support at $1.325 giving way on Friday, $1.3145 is seen as the next big hurdle for EUR/USD. Key events that could shape market sentiment include meetings of EU finance ministers that will take place on Tuesday and Wednesday.
EUR - The euro rebounded from last Friday's 7-week lows vs. the dollar after improved Black Friday sales in the US lifted optimism in global markets. The single currency rose to highs at $1.3398, rebounding from Friday's lows at $1.3210 in holiday thinned trading. Italy is the latest country to come under pressure after yields on 10-year bonds rose to 7.3% last week, prompting rumors of an IMF rescue which was subsequently denied by the IMF. Italy's funding costs are now at the same levels that forced Greece, Ireland and Portugal to seek international bailouts. Despite this, pressure on the euro has abated temporarily on optimism following better retail sales kicking off the crucial holiday shopping period in the US and hopes Europe can arrive at a solution to tackle its difficulties. Markets will continue to watch for hopeful signs of progress in the Eurozone with risks for the euro continuing to the downside if progress is not achieved.
GBP - The pound weakened versus higher yielding peers after data showed U.K. house prices dropped last month and the British Chambers of Commerce cut its economic-growth forecasts. It is anticipated that Chancellor of the Exchequer George Osborne will present tomorrow forecasts to Parliament showing greater than expected budget shortfalls and a cut in growth estimates. This comes on the heels of last week's announcement by the BoE stating that the threat of the euro-area debt crisis on the U.K. economy has increased - with the potential for an increase in stimulus necessary to support the economy.
JPY - USD/JPY is unchanged since Friday's close and hovering at the mid?point of November's tight trading range. Last week there was increased focus on the sustainability of Japan's debt burden. The focus came mainly from an IMF report that noted the risk of rising yields, falling confidence and a weak economy. However, with 93% of its debt held domestically, Japan should be able to maintain its debt statistics (220% of GDP) with relative ease. For now, expect USD/JPY to continue to trade within its tight November range.
CAD - After reaching a seven?week low last Friday, the loonie has retraced most of last week's losses, and is up 1.5%. With the exception of a temporary spike in risk aversion which would drive CAD weakness, the outlook for CAD remains strong. The simple question is, on a relative basis where are global investors going to invest? Canada should fare relatively well and this should in?turn support the currency. Accordingly USD/CAD may close 2012 below par. In the near?term, support for USD/CAD lies at 1.0270. As to economic releases, the highlight for Canada this week will be Wednesday's GDP (cons 0.3%m/m) and Friday's employment data (cons. 17k).
MXN - The Mexican peso recovered at the start of this week, rising the most in a month vs. the USD after record Thanksgiving sales boosted optimism for exports from Latin America's second-biggest economy. US retail sales increased by $11.4 billion during the US holiday weekend, while Mexican exports increased by $1.27 billion in October from September to $30 billion according research. Mexico exports 80% to the US so positive US retail sales number is very bullish for the peso. However, with EU debt crisis still in the backdrop, the peso's gains may be temporary.
AUD - The AUD advanced as much as 1.8% overnight against the dollar, the most in four weeks. This move higher follows a week in which the AUD declined 3%. This week is very light on data in Australia, so look for the AUD to remain under pressure in the near term on waning investor risk appetite and as expectations grow that the RBA will lower interest rates in the coming months.