USD - The USD is consolidating in its new ranges and is near its strongest against its most actively traded counterparts in more than 12 months. The dollar's fourth?quarter strength has carried over into 2012 as focus remains on the ongoing debt crisis in Europe and as encouraging economic data out of the US has caused investors to question the inevitability of a third round of quantitative easing. The health of the US economy will take center stage this week with a number of key reports on tap and with earning season set to kickoff at today's closing bell on Wall Street. Generally, earnings are expected to show modest gains as sales proved resilient throughout the second half of 2011 despite a sharp drop in demand from Europe. However, of the S&P 500 companies that have provided guidance on their Q4 numbers, more than 75% have warned their results won't meet forecasts. It remains to be seen how the bellwethers of the US economy actually fared in Q4, but their attempts to lower the bar are worrisome. On the economic data front, Tuesday sees the release of wholesale inventories and Wednesday brings the Fed's beige book for December. Retail sales data will be closely watched on Thursday as will jobless claims after last week's strong NFP and unemployment reports. The week closes out with the import price index, trade balance and U. of Michigan confidence reports all on Friday.
EUR - Concerns about Europe's debt crisis kept the euro near an 11?month low as Italy approaches its year?end debt auction this week. In addition, timing may prove unaccommodating this week as trading remains quiet with Rome planning to sell 8.5B euros worth of debt. Despite the difference in Italy's debt dynamics than that of Ireland, Greece and Portugal, the country could suffer the same fate as it faces roughly 100B euros in bond redemptions and coupon payments between January and April. As deadlines near and borrowing costs surge, investors fear that Italy may need an emergency bailout, which would renew doubts about the future of the euro.
GBP - The pound, which recently hit a 16? month high against the euro, retreated slightly after Merkel and Sarkozy met to craft a plan for rescuing the 17?nation common currency. This overall strength comes more as a result of EUR weakness versus strength in the pound, as U.K. job security fell to the lowest level since the readings started in 2004. The Bank of England is also expected to leave rates as well as their bond?purchase target unchanged at their upcoming meeting on the 12th.
JPY - JPY is stronger, up 0.2% vs the USD as local markets remain closed for a national holiday. USDJPY has seen limited movement in recent sessions, with support above 76.50 and resistance near the 100 day Moving Average (77.19). Market participants remain fearful of intervention in the event of further downward movement, while safe haven flows stemming from risk aversion are keeping JPY strong despite challenging fundamentals that include poor sovereign debt metrics and deteriorating trade balances.
Commodity Currencies - The CAD strengthened for the first time in four days versus the greenback amid an advance in stocks as leaders of Germany and France met to try to stem sovereign debt concerns. The CAD's upside remains limited as evidence mounts that growth in the nation's economy is cooling as the euro?area debt crisis lingers and with demand for commodities still at low levels. Australian retail sales unexpectedly stalled in November, ending four months of gains and pushing the nation's currency to a one?week low as traders increased bets that the RBA will cut interest rates. Sales were little changed from a month earlier, when they rose 0.2%. Weaker consumer spending may broaden the scope for RBA Governor Glenn Stevens to lower the nation's benchmark rate again after quarter percentage?point cuts on Nov.1 and Dec. 6.
MXN - The Mexican peso recovered modestly against the greenback after US NFP showed higher than expected figures. The US consumes over 80% of Mexico's export, so positive jobs data is bullish for the peso. Domestically, both manufacturing and nonmanufacturing activities for Mexico indicated a fourth month of continued expansion during December.
RMB ? China's currency broke its strengthening trend, weakening to a fixing level of 6.3236 as the dollar strengthened broadly ahead of Treasury Secretary Tim Geithner's visit to Beijing. Geithner will be looking to China (the biggest potential importer of Iranian oil) for assistance in increasing sanctions and continuing to pressure Iran from developing nuclear weapons. Look for the Yuan's strengthening trend to subside as the market focuses on the discussions with China surrounding the situation in Iran vs. the call for a stronger Yuan.