Daily Report: EUR/USD, GBP/USD, USD/JPY And XAU/USD : December 31, 2013

The U.S. Dollar gained against the majority of the Forex majors and reached a five-year high against the Yen during early Monday trading as Asian equities went up, and as investors closed their positions in order to retrieve profits before the conclusion of the year. The greenback was also supported by speculation that a recent string of positive macroeconomic releases could prompt the Federal Reserve to implement further reductions in the monthly asset purchases. Gold Prices dipped for the first time in four trading sessions and it’s predicted to be heading towards the largest depreciation in close to thirty years. Many speculators have lost confidence in the shiny metal and have instead opted for equities as the U.S. economy has shown signs of improved. Analysts are growing concerned that further reductions in stimulus by the Federal Reserve could prompt traders to shy away from gold. Futures for February delivery slipped during Monday morning trading hours on the New York Mercantile Exchange.

The Euro continued to trade high against the greenback as the week began, and it remained within the mid-1.37 range. The Euro region released important economic news denoting a drop in the Retail PMI, while Italy posted no changes to its 10-year bond yields. Subdued trading in the foreign exchange has not curtailed the Euro’s rally, as it fluctuated on Friday. On a positive note, the E.U. indicated that Ireland concluded the bailout program, which means that it will now have the opportunity to borrow money internationally. Ireland also reported progress in tourism, unemployment and agriculture. However, economists anticipate that Ireland will struggle to maintain growth as it had to institute drastic budget cuts in order to adhere to the IMF and E.U. requirements for obtaining the bailout funds. The British Pound gained against the U.S. Dollar and most of its counterparts as industry reports confirmed that the real estate market improved, and House Prices climbed for the eleventh consecutive time.

The Yen dipped after a rally in Asian stocks reduced appeal for safe havens such as the Yen. The Japanese monetary unit remained to the downside as investors expect the Federal Reserve to reduce bond purchases while the Bank of Japan will likely expand on monetary easing.

Lastly, in the South Pacific, the Australian and New Zealand Dollar dipped versus their U.S. peer as the U.S. economy is expected to continue improving, a factor that could prompt policy makers to announce further reductions in stimulus throughout 2014. The Australian Dollar weakened at the beginning of the week and it headed towards its worse week of declines in over thirty years as investors await Chinese data which may indicate a slowdown for its Manufacturing sector. The Aussie was also under pressure as iron ore ports located in the Northwest coast of the South Pacific nation closed down over the weekend in preparation for tropical cyclone Christine which touched the Aussie coast on Sunday night. The storm’s category was raised to level 3.

EUR/USD- Retail Sector Declines
Despite the low level of liquidity in the Forex exchange, the Euro traded to the upside against the U.S. Dollar. The Euro traded high despite metrics out of the region showing that the Retail Purchasing Manager’s Index posted at 4.76 points, denoting another month of contractions for retail activities. Meanwhile, Italy announced no changes to 10-year bond yields with a reading of 4.0 percent. The Euro jumped approximately 200 pips on Friday but retraced back to the mid-1.37 range. The shared currency was supported by news that Ireland has exited the bailout program, and comments by the European Central Bank’s head, Mario Draghi, who stated that he sees no need for further interest rate reductions for now.

GBP/USD- London House Prices Climb
The British Pound rose to a 24-month high against the U.S. currency after the U.K. revealed that home prices sustained the 11th consecutive advance. According to Hometrack, a website that tracks property values in the U.K., prices in London and Wales climbed 0.5 percent after posting a 0.5 percent increase last month. Values of homes went up 4.4 percent on a yearly basis and they’re predicted to continue rising in the coming year. However, some economists anticipate that the continued rise could lead to a real estate bubble. This week, market traders will pay close attention to other key economic reports including Construction and Manufacturing PMI.

USD/JPY- Pair Above 105
The greenback continued to hover at high levels against the Yen even as Japanese economic reports issued at the end of last week denoted that the economy remains on the right track. However, releases out of the U.S. denoting improvement in the labor sector pushed the greenback to the upside. The Bank of Japan published the minutes from its latest policy meeting, which showed that several board members remain worried over the state of the country’s economy. Officials said that even if the fourth quarter of 2013 posts economic expansion, an increase in sales tax due to take effect in April may have a less than positive impact on consumers. According to Prime Minister Shinzo Abe the Japanese economy has benefitted immensely from the aggressive monetary policies as they have helped stop deflation.

XAU/USD- Gold Heads For Biggest Drop
Gold Futures for February delivery were among the most actively traded commodities at the end of last week, and they settled at $1,218.90 on Friday afternoon on the Comex. But Monday paints a different picture as the precious metal slipped, and it’s forecast to sustain the largest drop since 1981 as the U.S. recently published signs of economic recovery while investors opted for other types of assets. Analysts say that with the likelihood of further stimulus cuts, as well as hikes in the stock market, gold is likely to continue falling. Gold prices plunged ahead of reports slated to indicate that activities in U.S. Manufacturing increased. Gold has dropped 28 percent in 2013 and slipped 0.9 percent on Monday morning, reaching $1,203.60 a troy ounce on the Comex.

Today’s Outlook
Today’s economic calendar is extremely light and shows that the U.S. will report on Chicago PMI, the Redbook, and CB Consumer Confidence. Australia will release data on Private Sector Credit. And the U.K. will publish the reading on the Lloyds Business Barometer.