Daily Market Analysis: Currency Report

U.S economic data continue to show improvements, signs the economy gaining strength heading into 2012. Last week we saw, lower unemployment claims, slight increase in new home sales, and rise in U.S. personal income and spending, increase in consumer sentiment, rise in existing home sales and improvements in U.S. construction industry. The improvement in the U.S economy has resulted in an increase in demand for the Dollar and made the currency stronger. This week events that might affect the market are; Tuesday, Conference Board (CB) Consumer Confidence (forecast: 58.2, Previous: 56), and Thursday, Initial Jobless Claims (forecast: 370K, Previous: 364K) and Pending Home Sales (MoM) (forecast: 1.5%, Previous: 10.4%).

Asian stocks rose to the highest level in almost two weeks, while the dollar maintained losses against higher-yielding peers. Kengo Suzuki, manager of the foreign-bond department in Tokyo at Mizuho Securities Co said that Excessive pessimism has retreated at the end of the year, and what we’re seeing is some unwinding of safe-haven buying of currencies like the dollar and yen. The Japanese government said Japan and China will promote direct trading of Yen and Yuan without using dollars and will encourage the development of a market for companies involved in the exchanges. Important data to be released this week are; Monday, Monetary Policy Meeting Minutes and Tuesday, Unemployment Rate (forecast to be flat at 4.5%), Tokyo Core CPI (YoY) (forecast: -0.4%, Previous: -0.5%), Retail Sales (YoY) (forecast: 0.1%, Previous: 1.9%) and Industrial Production (MoM) (forecast: -0.7%, Previous: 2.2%).

Even after the ECB lend out €500 billion European banks we continue to see Italian bonds coming under pressure. Italy's 10 year yield moved above 7% Friday. In addition, Italy's consumer confidence deteriorated significantly in December, data from a survey by statistical office Istat showed Friday. The consumer confidence index fell to 91.6 in December from 96.1 in November. We have seen five attempts to develop a ‘comprehensive’ solution to the Euro-area’s fiscal and each has failed. As we are heading into the new trading year, the greatest risk remains to the ongoing European sovereign debt crisis in Europe. Events to follow this week are; Thursday, German CPI (MoM) (forecast: 0.8%, previous: 0.0%) and Friday, Nationwide HPI (MoM) (forecast: 0.3%, Previous: 0.4%).

EUR/USD: The pair was very volatile last week and locked just about the 1.3045 Level at 1.3046. EUR/USD is trading higher today on the Asian in the region of 1.3058. The market sentiments remain bearish on the pair as we are yet to see some positive measures to contain the debt issue in Europe and also with nothing major waiting and choppy and tight trading ranges are expected to dominate the market during this week in general.



USD/JPY: The USD/JPY pair advanced last week to its highest level in three weeks, where the U.S. Housing data helped support the market confidence which increased demand for higher-yielding currencies, sending the pair downside. USD/JPY started the week below the key level of 78 and is currently trading at 77.97 levels. Narrow range trading is mostly expected for the USD/JPY pair during this week, as the volume will be at its lowest due to the holidays.

AUD/USD: The AUD/USD pair enjoyed a positive run last week, where the risk appetite returned to the financial market before the end of the year. However, the main trend in the market is still the demand for safer assets such as the yen and the U.S Dollar. The pair is trading slightly up today in the area of 1.0162 but it will hard for the pair to maintained this trend if U.S economic data schedule to release this week meets the expectations.

Gold: Gold prices decreased by more than $44 last week. Today, gold is trading in the narrow range of 1607.93 and 1605.30 as traders switched on holiday mode with Christmas on doors, so trading volumes ebb down and market movement is rather limited in a tighter range before the new year. Sentiments will start to shape as investors remain cautious ahead of the New Year’s holiday but traders will be mostly concerned about the latest development from the 17-bloc euro area.



S&P 500: U.S. stocks rose, pushing the Standard & Poor’s 500 Index to a 0.6 percent yearly rally, as expansion in U.S. industrial purchases and stronger new-home sales offset weaker-than-forecast consumer spending. The Index is hovering around the 1260 points this morning and further increases are expected this week, given that the economic data set to release this week comes out as forecasted as or even better than that.