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Forex - Weekly outlook: December 24 - 28

Published 12/23/2012, 05:30 AM
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Investing.com - The U.S. dollar ended Friday’s session higher against most of its major counterparts, as uncertainty surrounding talks between U.S. lawmakers to avoid the looming fiscal cliff crisis boosted demand for the safe-haven greenback.

Trading volumes were thin ahead of the Christmas holiday weekend, resulting in volatile trade.

Market sentiment remained under pressure as investors continued to monitor developments surrounding the fiscal cliff in the U.S., approximately USD600 billion in automatic tax hikes and spending cuts due to come into effect on January 1.

Doubts over whether a deal will be reached ahead of the year-end intensified late Thursday after House Speaker John Boehner pulled his so-called “Plan B” fiscal cliff option, which called for tax increases only on Americans earning USD1 million or more per year, because his Republican colleagues did not support the legislation.

The U.S. House has adjourned for the Christmas holiday, fueling speculation that policymakers will not be able to avert the fiscal cliff. Without a deal, the U.S. could fall back into recession and drag much of the world down with it.

Adding to the negative trade environment, Italian Prime Minister Mario Monti tendered his resignation after only 13 months in office, paving the way for a highly uncertain national election in February.

The news prompted investors to shun riskier assets, like stocks and high yielding currencies, and move in to safe-haven assets, such as the U.S. dollar and Treasurys.

On the data front, the U.S. Census Bureau reported that core durable goods orders, which exclude transportation items, rose 1.6% in November, defying expectations for a 0.2% decline.

Total durable goods orders rose by 0.7% last month, outpacing consensus forecasts for a 0.2% increase.

Meanwhile, a separate Commerce Department report revealed that personal spending in the U.S. rose by 0.4% in November, beating expectations for a 0.3% rise.

Also in the U.S., the University of Michigan's consumer sentiment index slumped unexpectedly in December, possibly due to fears the U.S. will careen over the fiscal cliff.

The index dipped to 72.9 for December from 74.5 the previous month, missing analysts' call for an improvement to 74.7 this month.

In Europe, the Gfk research group reported that its index of Germany’s consumer climate fell to 5.6 in December from 5.8 in November. Analysts had expected the index to improve to 5.9 this month.

The euro traded near a one-week low against the U.S. dollar on Friday, after rising to the highest level since April earlier in the week.

Elsewhere, the pound slumped to a one-week low against the broadly stronger dollar on Friday, after official data showed that the U.K. economy expanded less-than-anticipated in the third quarter, rising 0.9%, below expectations for a 1% rise.

The yen held near a 20-month low hit earlier in the week against the greenback after the Bank of Japan expanded the size of its asset-purchase program by JPY10 trillion to JPY101 trillion on Thursday.

BoJ Governor Masaaki Shirakawa also indicated that the central bank’s inflation goal will be reviewed at its next policy meeting in January, amid calls from newly-elected Prime Minister Shinzo Abe for the bank to implement more aggressive measures to combat deflation.

The greenback settled at two-week highs against the risk sensitive Canadian, Australian and New Zealand dollars, as sentiment turned cautious towards risk assets amid uncertainty over the looming U.S. fiscal cliff crisis.

In the week ahead trading volumes are expected to remain light because many traders have closed books to lock in profit before the end of the year, reducing liquidity in the market and increasing the volatility.

Meanwhile, the U.S. is to release key reports on consumer confidence, jobless claims and home sales.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, December 24

Markets in Japan, Germany, Australia and New Zealand will remain closed for Christmas Eve. U.S. equity markets will close early at 13:30EST (18:30 GMT).

Tuesday, December 25

Markets in the U.S., U.K., Europe, Canada, Australia and New Zealand will remain closed in observance of the Christmas Day holiday.

Meanwhile, the Bank of Japan is to publish the minutes of its most recent monetary policy meeting, which contain important insights into current economic conditions from the bank’s point of view.

Wednesday, December 26

Markets in Europe, the U.K. and Canada will remain closed for the Boxing Day holiday.

Meanwhile, the U.S. is to publish industry data on house price inflation, a leading indicator of demand in the housing market. The U.S. is also to release data on manufacturing activity in Richmond.

Thursday, December 27

In Switzerland, UBS bank is to publish its consumption indicator, an important indicator of consumer confidence.

Meanwhile, the U.S. is to publish its weekly government report on initial jobless claims, as well as data on new home sales and consumer confidence.

Later Thursday, Japan is to publish a flurry of data, with government reports on household spending, inflation, unemployment, manufacturing and retail sales, the leading indicator of consumer spending, which accounts for the majority of economic activity.

Friday, December 28

In the euro zone, France is to release official data on consumer spending,

The U.S. is to round up the week with data on pending home sales, as well as a report on business conditions in the Chicago area, a leading indicator of economic health. The country is also to release official data on crude oil stockpiles and natural gas inventories.


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