Last Week Recap

EUR/USD dropped considerably this week on increased credit concerns within the Eurozone. Monday saw the pair hit its weekly high of 1.4684, before trading lower after Austria announced the nationalizing of Hypo bank which had incurred substantial losses on its Eastern European investments. On Wednesday, S&P downgraded Greece's government debt from A- to BBB+, as well as downgrading major Greek banks down one level to BBB. The rating firm also put Greek sovereign debt on their CreditWatch negative list, indicating further future cuts in Greece's debt rating. The FOMC kept rates at 0.25% on Wednesday, as was widely expected, reiterating that rates would continue low for an extended period. On Friday, U.S. initial jobless claims expanded by 7,000, bringing the total to 480,000, slightly higher than the 470,000 expected. EUR/USD then fell to a weekly low of 1.4260 before bouncing on profit-taking to close at 1.4332, down 2% on the week.

USD/JPY improved significantly from last week, with the pair rallying off Monday's low of 88.30. On Tuesday, the BOJ left its policy rate unchanged at 0.1%, as was widely expected, commenting that the rate could continue unchanged until 2012, depending on deflationary pressures. In reviewing its price stability target, the BOJ also stated it would not tolerate deflation and projected a 1% growth in Japanese CPI. Governor Shirakawa said the BOJ was not committing to any further easing in monetary policy; however, without a clear plan to stop deflation, concerns grew that the central bank's credibility could deteriorate, ultimately driving USD/JPY higher. USD/JPY rallied to 90.89 on Friday before retreating to close at 90.45, up 1.5% on the week.

GBP/USD continued under mild selling pressure this week despite solid U.K. employment numbers out on Wednesday that surprised the market with only a 6,300 drop in unemployment claims in November. Even though overall unemployment rose to 7.9% versus the 7.8% expected, Cable still rallied to its weekly high of 1.6409 on the news. Nevertheless, the pair resumed its decline on Thursday as U.K. Retail Sales for November showed a disappointing drop of 0.3% M/M, against a 3.1% rise Y/Y. On Friday, the pair made its weekly low at 1.6050, before recovering to close at 1.6155, off 0.6% on the week.

AUD/USD was hit hard last week on concerns the RBA would pause tightening in the first quarter of 2010, despite AUD-positive RBA December minutes showing the central bank expects growth in the private sector to remain in an upward trend in 2010. Also, the RBA said it expects inflation to moderate further in the near term, although it was not expected to fall as far as was expected in the beginning of 2009. The Aussie was also hit after news out on Wednesday that Australian Q3 GDP rose a disappointing 0.2% versus 0.4% expected and versus a rise of 0.6% for the previous quarter. This indicated the Australian economy had slowed in Q3 as results of the first round of economic stimulus faded. The pair traded down from its weekly high of 0.9173 on Monday, selling off consistently to make a weekly low on Friday of 0.8808 before settling at 0.8891, off 2.6% on the week.

USD/CAD traded in a narrow range last week, closing the week only 0.6% higher at 1.0664, despite considerable U.S. Dollar strength, on the back of positive economic data from Canada that pointed strongly to a strengthening recovery in Canada. Not only was Tuesday's Canadian Leading Index of 1.1% far better than the market consensus of 0.6%, but Wednesday's Manufacturing Shipments number of 2.2% also firmly bested market estimates of 0.5%. On Thursday, news that the all-items Consumer Price Index had risen 1.0% in the last 12 months ending in November after a 0.1% rise in October, largely on gas price rises, also gave the market reason to think Canadian rates may soon be rising.

NZD/USD had another soft week, making an initial high of 0.7297 on Monday before selling off to a low of 0.7062 on Friday before bouncing to close at 0.7110, down 1.9% from the previous weekly close. The pair came under pressure after Thursday's N.Z. Business Confidence numbers dropped for the third consecutive month, according to a survey by the National Bank of New Zealand. The survey found that only 39% of respondents expected general business conditions to improve in December, versus 43% expecting improvement in November, and disappointed a market that was already buying U.S. Dollars.

The Week Ahead

USD: Despite the fact that global markets will likely be trading in thin holiday mode next week, some important U.S. economic data is scheduled for release. Look for Final U.S. GDP numbers on Tuesday (2.8%Q/Q, 0.5% Price Index), followed by Existing Home Sales (6.31M) and the House Price Index (0.2%M/M). Wednesday is active with Personal Spending (0.6%M/M), Income (0.4%M/M) and Consumption Expenditures ((0.1%M/M), followed by a revised University of Michigan Consumer Sentiment Survey (74.3), then New Home Sales (442K). Thursday finishes the week with Durable Goods Orders (0.4%, 0.9% Core M/M) and Initial Jobless Claims (471K), while Friday is a U.S. bank holiday.

AUD: A very light week for Australian economic numbers is scheduled ahead of the Christmas holiday. New Motor Vehicles Sales (last 3.7%) on Monday and the Conference Board's leading index (last 0.3%) on Tuesday, plus the Tuesday OPEC meetings are the only action items expected. Technically, AUD/USD has now broken its recent consolidation to the downside, initially finding support at 0.8806. Additional support is seen at 0.8773/87 and 0.8566/88, with initial resistance seen at 0.8944, and then at 0.9016/23 and 0.9174/90.

NZD: New Zealand's holiday week also has rather little of importance coming out on the economic front this week except for the Current Account (-2.01B) release on Tuesday and GDP (0.4%) on Wednesday. Friday is a bank holiday in New Zealand. Technically, NZD/USD continues to shoot up impulsively and then correct downwards in a choppier fashion as it trades within a 0.7024-0.7317 consolidation band above 0.6968, its 61.8% Fibonacci retracement of the move from 0.8212 to 0.4892. Support on dips ahead of 0.7024 near the 0.7043/65 region is expected to hold in the near term with resistance seen at 0.7131, 0.7208/24 and 0.7297/17.

GBP: This holiday week has another light slate of economic releases in the United Kingdom. Only the Current Account (-8.1B), Final GDP (-0.1%Q/Q) and the OPEC meetings might give the market a push on Tuesday, while Wednesday has the Monetary Policy Committee minutes (votes of 0-0-9 expected), that will be scrutinised by the market to ascertain the prospects of additional quantitative easing, plus BBA Mortgage Approvals (43.3K) and the Index of Services (0.3%3M/3M). Thursday is quiet, and the U.K. week closes with a bank holiday on Friday. On the technical front, GBP/USD remains softer within its broad consolidation band of 1.5706 to 1.7041, trading just above support at 1.6115/26. Additional support shows at 1.6048/75 and 1.5983, while resistance to the topside is seen at 1.6246/69, 1.6410 and 1.6718.

EUR: The Eurozone economic outlook is relatively quiet this week, with bank holidays in several countries on Thursday and Friday likely to subdue trading in EUR/USD ahead of Christmas. The GfK German Consumer Climate report (3.6) is due out on Tuesday, and German Import Prices (0.2%M/M) is scheduled for release on Wednesday along with French Consumer Spending (0.5%M/M), followed by Italian Retail Sales (0.2%M/M). Technically, EUR/USD seems set to continue its correction of the up-move from the Mar 4th 1.2456 low to the Nov 25th 1.5144 high now that both the trend line and the 23.6% Fibonacci retracement at 1.4510 has been breached. The 38.2% is at 1.4117, the 50% is at 1.3800 and the 61.8% comes in at 1.3483. Resistance is now seen at 1.4411, 1.4590 and 1.4777, while support shows at 1.4261, 1.4177/90 and 1.4045.

JPY: The week ahead in Japan is considerably more active than other countries in terms of economic releases, starting on Monday with the Trade Balance (0.27T), and the BOJ Monthly Report. Tuesday has a speech by BOJ Governor Shirakawa scheduled in Tokyo plus the OPEC meetings, and Wednesday is a Japanese bank holiday. Thursday has the BSI Manufacturing Index (11.2) and the BOJ monetary policy meeting minutes due out, plus another speech by Shirakawa scheduled. Look for the Unemployment Rate (5.2%), Consumer Price Index (-1.7% and -1.8%Tokyo Core Y/Y) and Housing Starts (-22.3%) to be the weekly highlight on Friday. With respect to the technical picture, USD/JPY remains within its short-term up-trend seen since Dec 9th with resistance seen at 90.76/90, 92.30/55 and 97.75. Support comes from the rising trend line currently at 88.85, as well as at 87.11/35 and the major 84.80 Nov 26th low.

CAD: The economic calendar in Canada is also peaceful ahead of the holidays with the only significant data scheduled for release being Retail Sales (0.9%M/M, 0.5% Core) on Tuesday and GDP on Wednesday (0.3%M/M). The OPEC meetings in Vienna on Tuesday may also provide some interest, and Canadian banks will be closed on Friday. The technical picture for USD/CAD shows the rate making impulsive upward moves, followed by choppy downward moves characteristic of an upward trend. Resistance shows at 1.0700, 1.0747/90 and the key 1.0868 Nov 2nd high, while support for the rate is indicated at 1.0627, 1.0550/68 and 1.0477/83.