Technical Analysis: EUR/USD, GBP/USD, USD/JPY, and USD/CAD

EUR/USD

The euro weakened for a second day after Standard & Poor’s stripped France of its top credit rating and cut eight other euro-zone nations. The shared currency extended a six-week-long slide against the greenback before France sells as much as 8.7 billion euros ($11 billion) in bills due to concerns of Europe’s financial downturn will intensify. The euro fell 0.3 percent to $1.2636 from $1.2680 at the close of trading last week when it touched $1.2624, the least since Aug. 25, 2010. The reason behind stripping off credit rating was European leaders are divided and falling behind in their response to the sovereign-debt crisis. The euro even dropped Jan. 13 before S&P lowered the top ratings of France and Austria one level to AA+ with negative outlooks while affirming the ratings of countries that included Germany, Belgium and the Netherlands. The company also downgraded Italy, Portugal, Spain and Cyprus by two steps and cut Malta, Slovakia and Slovenia by one level.  S&P analysts, outlining the decision to downgrade the sovereign credit ratings of nine of the euro area’s 17 members, said the challenges posed by the crisis were rising. The loss by France and Austria of their AAA credit ratings may erode the firepower of the euro-region’s bailout fund that’s needed to tap markets to finance aid for Greece, Ireland and Portugal. The European Financial Stability Facility owes its AAA rating to guarantees from the euro region’s top-rated nations.

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GBP/USD

Construction production in the United Kingdom increased marginally in November. The non-seasonally adjusted contraction output edged up 0.2 percent on a monthly basis in November, recovering modestly from the 0.1 percent decline seen in October. The volume of new construction works moved up 0.2 percent month-on-month while repair and maintenance works rose 0.3 percent.  The soft November construction output data follow on from very weak industrial production data for November which suggest that the industrial sector likely contracted by around 1.2% quarter-on-quarter in the fourth quarter of 2011. On an annual basis, construction output decreased 1.6 percent in November. In the three months ended November, output decreased 1.9 percent from the preceding three-month period while year-on-year it dropped 1.2 percent. On the other news, British output price inflation eased more than expected to a one-year low in December, supporting the case for more quantitative easing next month to shore up economic growth. The output price inflation slowed to 4.8 percent in December from 5.4 percent in the previous month. The benign set of producer price data supports belief that consumer price inflation is headed sharply lower over the coming months, and fuels the already strong belief that the Bank of England will implement at least GBP 50 billion more Quantitative Easing in February.

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USD/JPY

Japan's M2 money stock was up 3.1 percent on year in December standing at 806.7 trillion yen. That was slightly above forecasts for 3.0 percent, which would have been unchanged from the November reading. For the fourth quarter of 2011, M2 was up 3.0 percent on year while it added an annual 2.7 percent for the whole year. M3 money stock added 2.6 percent on year in December to 1,111.1 trillion yen versus forecasts for an increase of 2.5 percent which also would have been unchanged from the previous month. M3 collected 2.5 percent in the fourth quarter of 2011, and added 2.2 percent in all of 2011. L money stock gained 0.4 percent on year in December to 1,459.0 trillion yen after adding 0.3 percent in November. It added 0.3 percent in Q4 and 0.1 percent for all of 2011. Foreign resident were net buyers of Japanese stocks last week, and net sellers of Japan bonds and notes. Japan's Ministry of Finance reported Friday that foreign residents bought 43.1 billion yen more in Japan-based stocks then they sold for the week ending January 7th. Foreigners sold a net 141.3 billion yen worth of Japan bonds and notes for the week. Japan residents sold 56.4 billion yen more worth of foreign stocks than they bought for the week. Japan residents bought a net 386.3 billion yen in foreign bonds.

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USD/CAD

Canada’s dollar depreciated against its U.S. counterpart as Standard & Poor’s reduced France’s top sovereign-debt rating, eroding investor demand for riskier assets. Canada’s currency climbed 0.5 percent last week to C$1.0232 per U.S. It touched C$1.0319 on Jan. 9, the weakest level since Dec. 20. One Canadian dollar buys 97.73 U.S. cents. The Canadian dollar may depreciate to C$1.0860 after it breaks out of its range between C$1.000 to C$1.0350. Futures traders increased their bets the Canadian dollar will decline against the greenback. Meanwhile, Canada reported an unexpected surplus as exports of energy and automobiles rose while imports fell. Statistics Canada said the nation ran a surplus of C$1.07 billion ($1.05 billion) while the October deficit was revised to C$487 million from C$885 million. The trade report is the last major piece of economic data before the central bank’s Jan. 17 interest-rate decision. Governor Mark Carney will probably keep the policy interest rate at 1 percent where it’s been since September 2010. Canadian provinces are taking advantage of record-low borrowing costs to rise funding amid increasing concern the economic outlook may weaken and the risk of credit-rating downgrades will climb. Ontario, Quebec, Manitoba and Nova Scotia sold C$1.8 billion of bonds this week, compared with average weekly domestic issuance of C$1.2 billion in 2011. Yields on the Bank of America Merrill Lynch Canadian Provincial and Municipal Index were 2.52 percent yesterday, compared with 2.36 percent on Dec. 19, the lowest since at least 1992.

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