EUR: EUR/USD initially traded up to a new 2009 high of 1.5144 on Wednesday, before closing at 1.4988, up just 0.9% from the previous week’s 1.4858 close. EUR/USD rose the first part of the week ahead of the Thursday Thanksgiving holiday in the United States as risk appetite made a considerable comeback. Positive numbers were contained in the FOMC minutes, with the Fed expecting the continuing decline in the dollar to be orderly and unemployment to remain high for an extended period. This news fuelled the pair to make a new 2009 high at 1.5144 on Wednesday. Corporate earnings and a thin holiday market, along with a downwardly-revised Q3 GDP of +2.8% from +3.5%, contributed to the Euro’s rise against the Greenback. Nevertheless, the Euro’s rally was cut short with the announcement of Dubai World’s restructuring of their $59 billion debt, making world equity markets fall an average of 3% in a flight to quality before recovering somewhat on Friday. The U.S. Dollar also benefitted versus the Euro from ECB president Trichet reiterating his appreciation of U.S. support for a strong Dollar.
JPY: USD/JPY had a tumultuous week with the pair hitting new 14-year lows by dropping below the psychological 85.00 level to touch 84.80 on Friday before rebounding on profit-taking to close the week at 86.50, down a substantial 2.7% on the week. On Tuesday, the pair dropped below the key 88.00 level that was long thought to be the level expected for intervention by the BOJ. Japanese Finance Minister Fujii made a comment on Friday stating he would contact U.S. and E.U. officials to act on the currency market if needed, stating on Friday that "I am nervously watching the foreign exchange market carefully." Fujii also stated that the Yen’s strength was harmful to the Japanese economy, that there was no doubt the Yen’s movement was one-sided and that a government response was possible since further weakening of USD/JPY threatens Japanese export revenue and makes imports to Japan cheaper. Also, Japanese Core CPI excluding fresh food dropped 2.2%Y/Y, higher than the BOJ’s October forecast of 1.5%.
GBP: GBP/USD slipped to 1.6269 last week, its lowest level since November 3rd, but ended the week virtually unchanged at 1.6498 after a week of volatile trading. GBP/USD initially rose early in the week to a high of 1.6743 supported on news that the U.S.-based Hershey chocolate maker would be buying the U.K.’s Cadbury’s for $17B. Nevertheless, Sterling found topside resistance after Tuesday’s statement by BOE Governor Mervyn King that the United Kingdom faces “profound challenges” and BOE policy maker Adam Posen’s comment that the BOE may consider buying greater quantities of non-gilt assets. With the U.K. economy having contracted 0.3% from July to September, the current recession has now lasted six quarters, the longest on record. Adding to the volatility in GBP/USD was the U.K. bank’s exposure to the deepening debt crisis in Dubai. Regulators in the City of London sought assurances that major U.K. banks were protected, citing London-based HSBC and the Royal Bank of Scotland as having the greatest risk potential. Data compiled by the Bank for International Settlements indicated that U.K. banks could have the largest default risk with an estimated $49.5 billion exposure to Dubai.
AUD: AUD/USD strengthened early in the week after RBA Deputy Governor Battellino’s comments on Wednesday that the Australian economy had entered a “new upswing.” This fuelled speculation that the central bank would raise interest rates for a third consecutive month when Australian monetary policy makers meet on December 1st. The pair also hit a weekly high of 0.9321 on both Wednesday and Thursday after Dubai World sought to delay some payments on its debt. Nevertheless, AUD/USD then weakened considerably on Friday after capital expenditure data fell by a seasonally adjusted 3.9% in Q3, substantially below the market expectation of a 1% rise. This hurt expectations of a December interest rate rise, sending the pair to a weekly low of 0.8944 on Friday before it closed the week at 0.9059, down 0.9% on the week.
CAD: USD/CAD fell this week as a combination of positive Canadian economic news early in the week, along with news the Russian central bank was adding CAD to its reserves, brought out fresh buying interest in the Loonie. Monday’s release of Canadian Retail Sales showed a considerably better-than-expected M/M rise of 1% (0.6%M/M expected) to C$34.9 billion (C$32.9B expected) according to Statistics Canada. The pair then dropped further to a weekly low of 1.0448 on Wednesday after the Russian Central Bank announced that it would add the Canadian dollar to its reserves. The Loonie also benefitted from gold reaching a new high of $1,195.13 an ounce on Thursday, its fourth week of solid gains. USD/CAD then corrected higher on Friday on profit-taking, as well as on safe-haven demand for the Greenback based on concerns over the default situation in Dubai. This took USD/CAD to 1.0747 before the rate ended the week at 1.0609, a 0.8% drop on the week.
NZD: NZD/USD continued its downward correction this week, despite initially gaining support on reports that the Bank of China was buying Kiwis. The rate then fell, bouncing off support at 0.7220 on Tuesday, before later breaking that level on Wednesday only to find firm support at the psychological 0.7000 level during thin U.S.-holiday trading later in the week. NZD/USD then rallied after the Dubai default news broke to close the week at 0.7099, down 1.9% on the week from the previous 0.7237 weekly close.
The Week Ahead
USD: This week’s upcoming U.S. economic calendar is busy with key economic releases. Monday only has the Chicago PMI (53.1) due out, but Tuesday is active with ISM Manufacturing PMI and Prices (54.7 and 65.1), Pending Home Sales (-0.2%M/M), Construction Spending (-0.3%M/M), and Total Vehicle Sales (10.5M). Wednesday is also notable starting with ADP Non-Farm Employment Change (-145K), Crude Oil Inventories (last 1.0M), a speech by FOMC member Lacker in Charlotte, NC, plus the release of the Fed’s Beige Book that may shed some like on the future of U.S. interest rates. Thursday’s calendar starts with Unemployment Claims (480K), Revised Nonfarm Productivity (8.5%Q/Q) and Revised Unit Labour Costs (-4.3%Q/Q), followed by ISM Non-manufacturing PMI (51.6). Fed Chair Bernanke will also testify before the Senate Banking Committee to support his second-term nomination. Friday will be the likely highlight with the key Non-Farm Payrolls (-111K) and Unemployment Rate (10.2%) due out, plus Average Hourly Earnings (0.2%M/M) to be followed later by Factory Orders (0.2%M/M) and speeches by the Fed’s Plosser and Bullard.
AUD: The Australian economic calendar is quite active early in the week, beginning on Monday with the release of HIA New Home Sales (last -4.5%), MI Inflation Gauge (last -0.3%M/M), Private Sector Credit (0.2%M/M, 1.6%Y/Y), Q3 Inventories (-1.0%) and Company Operating Profits (0.1%Q/Q). Monday is also busy with the AIG Manufacturing Index (last 51.7) and Building Approvals (2.1%M/M, 9.6%Y/Y) scheduled, plus the key RBA cash rate announcement (+25bp to 3.75%) and statement. Tuesday has Commodity Prices (last -31.1%Y/Y), while Wednesday has the AIG Services Index (last 54.8) plus the important Aussie Retail Sales number (0.4%M/M) to round out the week. Technically, AUD/USD gapped higher on the charts over the weekend, so expect that 0.9060/0.9080 gap to be filled eventually. Chart support is now seen at 0.8945, 0.9020, and 0.9097. Resistance shows up on the chart at 0.9150 and 0.9253/75, with a key level at 0.9320 and above that the Nov. 16th high of 0.9405.
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AUD/USD
NZD: The economic week is quiet in New Zealand this week, beginning with Building Permits (last 3.3%M/M) on Monday, which is followed on Thursday by the ANZ Commodity Price index for November (last 4.6%). Technically, trading in NZD/USD has continued the previous week’s softness, although support was found at 0.7008, 0.7023 and 0.7034 ahead of the key 0.7000 psychological level. Resistance is now showing on the charts at 0.7170 and 0.7330/65, as well as at the important 0.7634 Oct 21st high.
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NZD/USD
GBP: This week has a smattering of important economic releases scheduled in the United Kingdom, as well as some key policymaker speeches. Also, U.K. banks’ exposure to the Dubai default is likely to be a factor weighing on Sterling. The U.K. economic calendar gets rolling on Monday with GfK Consumer Confidence (-11), followed by Net Lending to Individuals (0.8BM/M), and Mortgage Approvals (59K). Tuesday has the important Nationwide and Halifax House Price Indices (0.4%M/M and 0.8%) scheduled, as well as Manufacturing PMI (54.1) and a speech by MPC member Posen. Look for a speech by MPC member and BOE Chief Economist Spencer Dale in Essex on Wednesday, followed by Construction PMI (46.9) and Services PMI (57.1) on Thursday to finish the week’s data. From a technical perspective, GBP/USD is still trading toward the higher side of its broad consolidation range of 1.5727 to 1.7041. Now trading just above support at 1.6510/20, additional support is seen at 1.6460 and below that in the 1.6250/70 region, with resistance to the topside coming in at 1.6744 and 1.6843/75.
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GBP/USD
GBP/EUR
GBP/JPY
GBP/NZD
EUR: The Eurozone has a calmer week ahead, with Monday’s releases including the CPI Flash Estimate (0.5%Y/Y), and Italian Preliminary CPI (0.2%M/M). Look for German Retail Sales (0.6%M/M), Unemployment Change (5K), and Eurozone Final Manufacturing PMI (51.0) on Tuesday. Wednesday has Eurozone PPI (0.1%M/M), while Thursday is the highlight that closes the week with Final Services PMI (53.3), Retail Sales (0.2%M/M), Revised GDP (0.4%Q/Q), and the Minimum Bid Rate (unchanged at 1.0%) scheduled for release. An ECB Press Conference is also on tap for Thursday and Buba President Weber will speak in Frankfurt, so watch out for comments that might prompt a change in the market’s interest rate expectations. Technically, EUR/USD is continuing its consolidation of recent gains, with support seen at 1.4888, 1.4820/41, 1.4726 and 1.4517. Resistance is seen at 1.5100, the Nov 25th highs of 1.5144, 1.5284/1.5302 and the 2008 highs of 1.6018/38.
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EUR/USD
JPY: : The week ahead in Japan is relatively quiet in terms of economic factors, starting early on Monday with Manufacturing PMI (last 54.3), Preliminary Industrial Production (2.5%M/M), Average Cash Earnings (1.7%Y/Y) plus a speech by BOJ Governor Shirakawa in Nagoya. Monday also has Japanese Housing Starts (-3.2%Y/Y), while Tuesday has the Monetary Base (4.7%Y/Y) and Wednesday has Capital Spending (-15.8%Q/Y) due out. The technical outlook for USD/JPY remains bearish with the new 14-year lows seen on the charts last week at 84.80, along with the key 80.00 psychological level, offering some support. Resistance to the topside is seen at 88.00, 91.73 and 92.32.
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JPY/USD
CAD: Canada has yet another light data release week coming up, but it contains some important economic numbers. The action begins on Monday with Canadian GDP (0.4%M/M), Raw Materials Price Index or RMPI (2.9%M/M) and Industrial Product Price Index or IPPI (0.5%M/M). All is then quiet until Friday when the key Canadian Unemployment Rate (8.6%), Employment Change (15.3K) and Ivey Purchasing Manager’s Index (60.6) are scheduled for release. After an unusually volatile previous week, USD/CAD is now showing signs of consolidation, with support seen between 1.0416 and 1.4049, and at 1.0205 below that. Resistance is found in the 1.0732/48 region, at 1.0774, and at the key Nov 1st high of 1.0868.