Last Week Recap

EUR: EUR/USD backed off considerably last week, after lingering concerns over the Dubai default, compounded by solid U.S. economic numbers, put selling pressure on the currency pair. Also adding to the Greenback's strength were falling crude oil prices which fell below $70 a barrel and gold falling below the $1,120 an ounce level last week. The pair resumed its descent on Monday after hitting the weekly high of 1.4902 after Fed Chairman Bernanke stated that the U.S. economy is unlikely to see a vigorous snapback and that the FOMC is still looking at an extended period for low rates. The pair continued under pressure the rest of the week due to rising risk aversion. This was largely based on sovereign default concerns after Fitch Ratings downgraded Greece's debt on Tuesday to BBB+ from A-, and S&P's credit outlook for Spain fell to negative from stable. S&P stated that its dimmer economic outlook for Spain reflects the risk of a downgrade within the next two years. The pair finished the week lower after U.S. Retail Sales showed a strong rise of 1.3% in November (versus 0.6% expected) and University of Michigan Consumer Sentiment figures rose to 73.4 in December, soundly beating the 67.3 number expected. EUR/USD finished the week at 1.4611, off 1.7%.

JPY: USD/JPY traded in a narrow range last week despite the activity in Asian markets following Japan announcing its secondary stimulus budget on Tuesday after weeks of inter-party debates. The Japanese government announced that it is pledging 7.2 trillion Yen to prevent the economy from further declining into deflation by allocating funds to the housing, labour and environmental sectors. The pair hit a weekly low of 87.35 on Wednesday after Japanese GDP in the third quarter was revised, showing an expansion of 1.3%. This represented a 0.3% growth versus the 4.8% rate of growth or 1.2% increase first reported last month. The pair then improved the rest of the week, ending the week at 89.08, off 1.6%.

GBP: Cable fell under pressure this week, in part due to disappointing U.K. industrial and manufacturing data out on Tuesday which showed that U.K. Manufacturing Output had contracted 1.4%, versus the market consensus of a 0.5% drop. Also on Tuesday, Moody's released a report suggesting U.K. debt could be downgraded from AAA status because of sovereign debt problems in Dubai, Ireland and Iceland, as well as high U.K. deficits. The report also suggested that U.S. debt could be downgraded within three to four years. On Wednesday, the pair hit a weekly low of 1.6166 after U.K. Chancellor Darling delivered his Pre-General Election Pre-Budget Report, postponing until after the 2010 general election what the U.K. government will do to rein in the budget deficit which is currently running at 15% of U.K. GDP. The pair consolidated the rest of the week and closed Friday at 1.6258, showing a 1.3% decline on the week.

AUD: AUD/USD had a week of volatile trading with Australian economic data releases continuing to support the RBA's recent monetary policy tightening cycle. Thursday saw Australian unemployment fall to 5.7% from 5.8% in October, beating the 5.9% market consensus. The positive numbers gave the market expectations that the RBA would hike rates again in February. The RBA was the first major central bank to raise rates back in October and has raised rates for three consecutive months as the Australian economy rebounds from world recession. Australian Treasurer Wayne Swan stated that the jobs figure reflects the results of the 42 billion Australian dollars stimulus package, adding: Through stimulus we have been able to have a fundamental impact on confidence - both business confidence and consumer confidence. The pair made a weekly high of 0.9192 on Friday before ending virtually unchanged at 0.9125, down just 14 pips from the previous weekly close.

CAD: USD/CAD traded in a narrow range this week, rising to a weekly high of 1.0669 on Tuesday after the Bank of Canada left the overnight rate unchanged at 0.25%, as expected. The BOC also reaffirmed its commitment to keep the overnight rate at 0.25% until the end of the second quarter of 2010. The pair then headed south, making a low of 1.0477 on Thursday ahead of Friday's better-than expected U.S. Retail Sales and consumer sentiment numbers. USD/CAD closed the week virtually unchanged at 1.0598, up a mere 22 pips from the previous week's close. NZD: NZD/USD traded in a narrow range early in the week, making a weekly low of 0.7042 on Wednesday ahead of the RBNZ's announcement on Thursday that it would keep its official cash rate at 2.5%, as was widely expected. At the time, RBNZ Governor Alan Bollard stated that If the economy continues to recover, conditions may support beginning to remove monetary stimulus around the middle of 2010. He then added, Recent tightening in financial conditions, driven by a higher exchange rate, increased long-term interest rates and a wider gap between the OCR and bank funding costs, reduces the need for more immediate action. NZD/USD made a weekly high of 0.7316 after the announcement, before backing off to settle at 0.7249 on Friday, up 1.3% on the week.

The Week Ahead

USD: The U.S. economic calendar takes Monday off, but heats up on Tuesday with PPI (0.8%M/M, 0.3%Core), Empire State Manufacturing Index (25.1), followed by TIC Long-term Purchases (50.3B), Capacity Utilization (71.1%), Industrial Production (0.6%M/M) and the NAHB Housing Market Index (18). Wednesday has Building Permits (0.58M), CPI (0.4%M/M, 0.2%Core), Current Account (-106B), Housing Starts (0.59M) and the key FOMC rate announcement where the Fed Funds rate is expected to stay unchanged at 0.25%. Initial Jobless Claims (470K), the Philadelphia Fed Manufacturing Index (16.1) and the CB Leading Index (0.8%M/M) top off the week on Friday.

AUD: The Australian economic calendar is again primarily active early in the week, beginning on Tuesday with the RBA's Monetary Policy Meeting Minutes and Housing Starts (6.1%Q/Q). Wednesday has the Melbourne Institute Leading Index (last 0.4%M/M), plus the key GDP (0.4%Q/Q) number and a speech by RBA Governor Battellino in Sydney. Technically, AUD/USD's price action continues to tighten its consolidation within a pennant formation, with a breakout likely soon and probably to the upside. Support is seen at 0.9015/25, 0.8946 and 0.8905/15, with good resistance appearing at 0.9321 and above that at 0.9375 and the major 0.9405 Nov 16th high.

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NZD: New Zealand has rather little of importance coming out on the economic front this week except for the Performance of Services Index on Monday (last 49.9), followed by Non-residential Bond Holdings (last 71.2%), and then the highlighted NBNZ Business Confidence Index (last 43.4) on Thursday. Technically, NZD/USD continues to consolidate above 0.6968, its 61.8% Fibonacci retracement of the move from 0.8212 to 0.4892. Provided this key level continues to hold, consider buying on dips near the 0.7024/42 region. Resistance is seen at 0.7317/30, 0.7497/0.7522 and 0.7633.

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GBP: This week has a lighter slate of economic releases scheduled in the United Kingdom than the previous week. Look for the Rightmove House Price Index (last -1.6%) plus the BOE's quarterly bulletin on Monday, then CPI (1.8%Y/Y) and RPI (0.2%Y/Y) on Tuesday. Wednesday is the expected highlight with a speech by MPC member Miles in London followed by the U.K. Unemployment Rate (8.0%). Thursday's Retail Sales (0.5%M/M), Consumer Inflation Expectations (last 2.4%) and CBI Realized Sales (16) figures are also important, as might be the BOE Financial Stability Report on Friday. On the technical front, GBP/USD is currently softening within its broad consolidation band of 1.5706 to 1.7041. Intervening resistance is seen at 1.6720/45 and 1.6871, while support shows at 1.6166, 1.6112 and 1.5983.

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EUR: The Eurozone has a fairly busy economic data release week ahead. Monday starts the action with Industrial Production (-0.6%M/M) and Employment Change (last -0.5%Q/Q). Tuesday has the French CPI (0.2%) and German ZEW Economic Sentiment Index (50.2), while Wednesday has a slew of European PMI survey reports, plus Eurozone CPI (0.6%Y/Y, 1.2% Core). Friday's data will include German PPI (0.2%M/M), German IFO Business Climate (94.6), the ECB's Current Account (-2.3B) and the Eurozone Trade Balance (5.7B). Technically, after last week's medium-term up-trend line breach, the upside for EUR/USD should be capped by that line, currently situated around 1.4800 and rising, with additional topside resistance seen at 1.4863, 1.4902 and 1.5090. Support comes in at 1.4626, 1.4586 and 1.4484.

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JPY: The week ahead in Japan is important in terms of economic releases, starting on Monday with the key Tankan Manufacturing (-26) and Non-Manufacturing (-23) Indices, followed by Revised Industrial Production (0.5%M/M) and Capacity Utilization (last 1.6%M/M). The Tertiary Industry Index (0.5%M/M) is out on Wednesday, while Thursday has Machine Tool Orders (-8.6%) scheduled. Look for Leading and Coincident Indices (last 89.7 and 94.3) and the BOJ's Monetary Policy Statement, where the overnight call rate is expected to remain unchanged at 0.1%, to finish the week's economic schedule on Friday. With respect to the technical picture, USD/JPY has been in a short-term up-trend since Dec 9th that will be resisted at 89.80, 90.76 and 92.30. Support comes from the rising trend line currently at 87.75, as well as at 87.11/35 and the major 84.80 Nov 26th low.

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CAD: Canada has a busier week than usual planned with Capacity Utilization (67.7%) opening the week on Monday, followed on Tuesday by Labour Productivity (-0.4%Q/Q) and the Leading Index (0.6%M/M). Wednesday has Manufacturing Sales (0.5%M/M) and a speech by BOC Governor Carney in Toronto. Look for Thursday's CPI release (0.4%M/M and 0.1%M/M Core) and Foreign Securities Purchases (10.11B) to be the highlight, with Friday rounding out the week with Wholesale Sales (0.2%M/M). The technical picture for USD/CAD also shows a consolidating bullish pennant formation on the daily charts, with a likely target just under 1.1300 after breakout. Support for the rate shows at 1.0513, 1.0481, 1.0405 and 1.0377, with resistance at 1.0648/69, 1.0747/90 and the key 1.0868 Nov 2nd high.

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