USD – The dollar is mixed after US pending home sales unexpectedly fell in December while durable goods orders reported higher than expected.
Pending home sales declined in December after three months of gains for the first time since August, showing uneven progress in the housing market. The index of contracts for the purchase of previously owned homes fell 4.3% after a revised 1.6% increase. Meanwhile, the US Commerce
Department reported orders for durable goods climbed more than forecasted in December, showing US manufacturing rebounded following a mid‐year slump. Bookings for goods meant to last at least three years rose 4.6%, exceeding the highest forecast of economists surveyed, after a
0.7% gain in November. Excluding demand for transportation equipment, which is often volatile, orders increased 1.3%. Aircraft bookings rose
10.1% after falling 12.9% in November. In addition, a gauge of US business investment plans improved in December, a sign that companies were betting the economy will pick up despite fears over tighter fiscal policy. Movements in major currencies were limited ahead of key economic events later in the week, including a Federal Reserve meeting and the monthly jobs data for January.

EUR – The Eurozone is emerging as a potential victim in a currency war with the EUR strengthening on the back of tightening monetary and fiscal policy, at a time when a weaker euro could help support the required economic adjustment. While all other G10 central banks are still easing monetary policy or remain on hold, the ECB is currently seeing a modest tightening in monetary policy as unconventional measures naturally unwind reflecting improving conditions in the European banking system. The euro ended last week strongly, with news that European banks had repaid €137bn of loans to the ECB helping to reinforce the view that the liquidity crisis in the region is easing. The positive tone was
also aided by the third consecutive monthly rise in the German IFO index. The single currency is holding not far below Friday’s 11‐month high vs.
the dollar. This week’s data releases, starting with Italian consumer confidence today, are expected to mirror the general improvement seen in last
week’s January survey data. However, other figures could well highlight the problems still facing the economy and provide the euro with some headwinds. A further rise in unemployment is forecasted in January while Spanish and Belgian preliminary Q4 GDP figures are expected to emphasize the weakness of the economy at the end of last year.

GBP – The pound weakened against the dollar as worries about a weak British economy and the prospect of more monetary easing pushed the sterling to its lowest in five months vs. the dollar. British consumer confidence fell sharply in December to ‐29 from ‐22 in November, as expectations for the broader economy worsened. At the height of the Eurozone debt crisis, the sterling was often seen as the preferred safehaven.
However, as fears surrounding euro debt eases, investors have been transferring their funds out of UK assets. This leaves the sterling increasingly vulnerable to concerns about its economic and monetary policy outlook. Market participants should expect the sterling to continue on the downside in the near term as the sterling remains the worst performing G10 currency. However, the focus this week will be on the UK manufacturing activity for January, which will determine if bets for further asset purchases will grow ahead of the February BoE meeting.

JPY – The yen strengthened against the dollar as US home sales data weakened in the month of December after three months of gains. Economic
data on Japanese household spending rose 0.2% in November from a year earlier as the cold weather boosted sales for winter clothing. Although the jobless rate in Japan lowered 0.1% in November, the availability of jobs remained unchanged. The BoJ announced last week that it would buy
unlimited amounts of assets in 2014 and double its inflation target to 2%. This has accelerated a fall in the value of the yen and criticism from
global policymakers including German Chancellor Angela Merkel, who said central bank policy was not to compensate for a lack of  competitiveness. Market participants look forward to next month’s G20 meeting, as financial leaders are likely to debate last Thursday’s statement from Japan’s deputy economy minister Yasutoshi Nishimura, that the yen’s decline was not over and that a dollar/yen level of 100 would not be a concern.

Commodity Currencies – The commodity currencies are weak against the dollar, with the AUD and NZD heading range‐bound and holding above the 100‐day moving average support level. The Reserve Bank of New Zealand will hold its first rate review of the year on Thursday. Market
participants expect that it will hold rates at a record low for a 15th consecutive month. Economic data for the AUD due this week includes Australian business conditions, producer prices, and trade prices. Expect the AUD to continue to hold in its ranges, as investors await domestic

RMB – The Chinese yuan (CNY) weakened after the National Bureau of Statistics reported growth had only risen by 5.3% in 2012 in comparison to the 25.4% growth in 2011. Chinese industrial companies recorded negative profit growth on a y/y basis in the first eight months of the year,
aside from March, before the sharp increases in Q4; Oct, 20.5%, Nov, 22.7% and Dec 17.3%.


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