http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/us_open/2011/01/06/01-06-11.html
Talking Points
- British Pound: Services Unexpectedly Contract
- Euro: Retail Spending Contracts
- Canadian Dollar: Ivey PMI on Tap
- U.S. Dollar: Risk Sentiment To Drive Price Action On Light Calendar
The British Pound fell back from a high of 1.5563 as the economic docket reinforced a weakened outlook for future growth, and the exchange rate may push lower going into the end of the week as it maintains the downward trend from the November high (1.6298). A survey by the Bank of England showed demands for home loans fell “markedly” in the four quarter, with the gauge slipping to -41.5 from -6.1 during the three-months through September, while credit availability for firms in the U.K. was “broadly unchanged” from the third quarter. Moreover, a separate report showed service-based activity in Britain contracted for the first time since April 2009, with the PMI falling back to 49.7 from 53.0 in November, and the central bank is likely to maintain its current policy throughout the first quarter of 2011 as it aims to balance the risks for the region.
According to Credit Suisse overnight index swaps, investors are pricing at least one 25bp rate hike for 2011 as the BoE expects inflation to hold above the 2% target, but the central bank may continue to talk down the risks for inflation as it expects the tough austerity measures to bear down on the economic recovery. In turn, we may see a growing split within the MPC as the fundamental outlook remains clouded with uncertainties, and the opposing views held by the committee could translate into British Pound weakness as investors speculate the BoE to expand monetary policy further over the coming months. As a result, the GBP/USD is likely to maintain the downward trend over the near-term, and the exchange rate may fall back towards the September low (1.5296) as it searches for support.
The Euro slipped to a low of 1.3083 on Thursday following a mixed batch of data, and the single-currency may face increased headwinds over the coming days as European policy makers struggle to prop up investor sentiment. Economic confidence in the Euro-Zone improved for the seventh consecutive month in December, with the index advancing to 106.2 from 105.1 in the previous month, while retail spending unexpectedly fell 0.8% in November after holding flat in the month prior. As policy makers expect to see an “uneven” recovery materialize this year, the European Central Bank is likely to support the economy throughout the first-half of the year, but the mounting risk for contagion could lead the Governing Council to delay its exit strategy further as the governments operating under the fixed-exchange rate system struggle to balance the budget deficit. However, as the EUR/USD holds above the 200-Day moving average at 1.3079, the exchange rate may hold steady as equity futures foreshadow a higher open for the U.S. market, and a rebound in market sentiment could lead the euro-dollar to pare the overnight decline as risk trends continue to dictate price action in the currency market.
U.S. dollar price action was mixed during the overnight trade, with the USD/JPY bouncing back from a low of 82.87, and risk sentiment is likely to dictate price action going into the North American session as the economic docket remains fairly light for Thursday. Nevertheless, the Canadian dollar remains at risk for a short-term reversal as market participants expect business spending in the region to expand at a slower pace in December, and a dismal Ivey PMI could lead the USD/CAD to retrace the sharp decline from the holiday trade as the Bank of Canada curbs its outlook for future growth.
Related Articles: Forex Weekly Trading Forecast - 01.03.11
FX Upcoming
| Currency | GMT | EST | Release | Expected | Prior | ||
| USD | 13:30 | 08:30 | Continuing Claims (DED 25) | 4090K | 4128K | ||
| USD | 13:30 | 08:30 | Initial Jobless Claims (JAN 1) | 404K | 388K | ||
| CAD | 15:00 | 10:00 | Ivey PMI (DEC) | 54.0 | 57.5 | ||
| Currency | GMT | Release | Expected | Actual | Comments |
| AUD | 22:30 | AiG Performance of Services Index (DEC) | -- | 46.4 | Moves modestly off lows from Nov. |
| AUD | 00:30 | Building Approvals (MoM) (NOV) | -4.0% | -4.2% | 8th contraction in 2010 |
| AUD | 00:30 | Building Approvals (YoY) (NOV) | -9.8% | -9.9% | 2nd contraction in 2010 |
| JPY | 02:00 | Tokyo Average Office Vacancies (DEC) | -- | 8.91% | Slips back from 3 month high in Nov. |
| CHF | 08:00 | CPI (MoM) (DEC) | -0.1% | 0.0% | Outcome remains tame but moving in the right direction |
| CHF | 08:00 | CPI (YoY) (DEC) | 0.4% | 0.5% | |
| GBP | 09:30 | PMI Services (DEC) | 52.8 | 49.7 | Worst reading since April 2009 |
| GBP | 09:30 | Official Reserves ( Changes) (DEC) | -- | $976M | Rebounds from sharp contraction in Nov. |
| EUR | 10:00 | Euro-zone Consumer Confidence (DEC F) | -10.2 | -11.0 | Pretty strong readings across the board, some have smashed expectations |
| EUR | 10:00 | Euro-zone Economic Confidence (DEC) | 105.8 | 106.2 | |
| EUR | 10:00 | Euro-zone Industrial Confidence (DEC) | 2.0 | 4.0 | |
| EUR | 10:00 | Euro-zone Business Climate Indicator (DEC) | 1.00 | 1.31 | |
| EUR | 10:00 | Euro-zone Service Confidence (DEC) | 10.1 | 9.8 | |
| EUR | 10:00 | Euro-zone Retail Sales (MoM) (NOV) | 0.2% | -0.8% | Weakness is in line with recent trends. |
| EUR | 10:00 | Euro-zone Retail Sales (Yoy) (NOV) | 2.1% | 0.1% | |
| EUR | 11:00 | German Factory Orders (MoM) (NOV) | 1.0% | 5.2% | Fastest expansion since Jan. 2010 |
| EUR | 11:00 | German Factory Orders (YoY) (NOV) | 15.9% | 20.6% | Best since June 2010. |
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