Friday, January 21, 2011

Forex: Euro Regains Footing, British Pound To Consolidate Ahead of 4Q GDP

http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/us_open/2011/01/21/01-21-11.html

Talking Points
  • British Pound: Retail Spending Contracts
  • Euro: German Business Confidence Hits Record-High
  • Canadian Dollar: Retail Sales To Climb For Six Straight Months
  • U.S. Dollar: Weighed By Risk Appetite, U.S. Stocks To Open Higher
The near-term rally in the Euro gathered pace on Friday and the exchange rate may continue to push higher throughout the North American trade as investors raise their appetite for risk. The EUR/USD advanced to a fresh monthly high of 1.3565 as business confidence in Germany rose to a record-high in January, and the pair may continue to retrace the decline from back in November as the outlook for growth and inflation improves. As the euro-dollar crosses back above 1.3500, the 50.0% Fibonacci retracement from the 2009 high to the 2010 low, the pair may work its way towards former support around 1.3700, but the exchange rate may consolidate throughout the remainder of the day as market liquidity going into the weekend.
The IFO business confidence survey unexpectedly increased to 110.3 from a revised 109.8 in December to mark the highest reading since the series began in 1991, while the gauge for future expectations rose to 107.8 during the same period from 106.8 in the previous month. As growth prospects improve, the European Central Bank may turn increasingly hawkish over the coming months, and the central bank may see scope to implement its exit strategy later this year as it maintains its one and only mandate to ensure price stability. However, the near-term rally in the euro could be short-lived as European policy makers maintain a relaxed approach in addressing the sovereign debt crisis, and the single-currency is likely to face additional headwinds over the coming months as the risk for contagion continues to bear down on investor confidence.
The British Pound rallied to a high of 1.5961, but the exchange rate may hold steady going into the North American session as it trades within the previous day’s range. Nevertheless, retail spending in the U.K. slipped 0.3% in December, which was largely in line with expectations, while sales including auto fuel tumbled 0.8% amid forecasts for a 0.2% decline. In turn, private consumption may weaken further over the coming months as households cope with higher inflation paired with the ongoing weakness in the real economy, and the Bank of England may retain its wait-and-see approach throughout the first-half of the year as it aims to balance the risks for the region. As market participants expect economic activity in the fourth quarter to expand at a slower pace, the British Pound may come under pressure over the following week, and the BoE may continue to talk down the risk for inflation as the central bank expects the substantial margin of slack within the real economy to damped price growth.
The greenback weakened across the board on Friday, with the USD/CAD slipping to a low of 0.9951, and the reserve currency may continue to selloff throughout the North American trade as equity futures foreshadow a higher open for the U.S. market. Nevertheless, the Canadian dollar may show a bullish reaction to the retail sales report as market participants expect household spending to expand for the sixth consecutive month, and the dollar-loonie may continue to retrace the advance from earlier this week as the data reinforces an improved outlook for Canada.
Will the EUR/USD retrace the advance from September? Join us in the Forum
To discuss this report contact David Song, Currency Analyst:dsong@fxcm.com
FX Upcoming
Currency
GMT
EST
Release
Expected
Prior
CAD
13:30
08:30
Retail Sales (MoM) (NOV)
0.4%
0.8%
CAD
13:30
08:30
Retail Sales Less Autos (MoM) (NOV)
0.4%
0.9%
Currency
GMT
Release
Expected
Actual
Comments
NZD
21:30
Business PMI (DEC)
--
53.1
Highest since June
NZD
21:45
Retail Sales (MoM) (NOV)
1.1%
1.5%
Bounces back from sharp contraction
NZD
21:45
Retail Sales Ex-Auto (MoM) (NOV)
0.5%
-0.2%
2nd straight contraction
AUD
00:30
Export Price Index (QoQ) (4Q)
--
-8.1%
1st contraction in 2010
AUD
00:30
Import Price Index (QoQ) (4Q)
--
-3.8%
AUD
00:30
RBA Forex Transaction (AUD) (DEC)
--
855M
Highest since June
JPY
04:30
All Industry Activity Index (MoM) (NOV)
0.2%
-0.1%
4th straight contraction
EUR
07:45
French Business Confidence Indicator (JAN)
--
108
Continues 2010 strength
EUR
07:45
French Own-Company Production Outlook (JAN)
--
16
Best since Oct ‘10
EUR
07:45
French Production Outlook Indicator (JAN)
--
10
Remains at strongest level
CHF
08:00
Money Supply M3 (YoY) (DEC)
--
6.6%
Best since Sept.
CHF
08:00
Real Estate Index Family Homes (4Q)
--
390.0
Hits a record high
EUR
09:00
German IFO Busines Climate (JAN)
109.9
110.3
Remains on record-breaking course.
EUR
09:00
German IFO Current Assessment (JAN)
113.2
112.8
EUR
09:00
German IFO Expectations (JAN)
106.5
107.8
GBP
09:30
Retail Sales (MOM) (DEC)
-0.3%
-0.3%
Softer than expected figures due to harsh winter conditions.
GBP
09:30
Retail Sales (YoY) (DEC)
1.3%
1.0%
GBP
09:30
Retail Sales w/ Auto Fuel (MOM) (DEC)
-0.2%
-0.8%
GBP
09:30
Retail Sales w/ Auto Fuel (YoY) (DEC)
1.1%
0.0%
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