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Talking Points
- British Pound: Remains Capped By 20-Day SMA
- Euro: German Trade Surplus Narrows, Outputs Increase
- New Zealand Dollar: RBNZ To Hold Rate At 3.00%
- U.S. Dollar: Risk Sentiment To Drive Price Action On Light Event Risks
However, the small retracement in the EUR/USD is likely to be short-lived as market participants speculate Portugal and Spain to share Ireland’s ill fate, and a shift in risk sentiment could lead the exchange rate to fall back towards the 200-Day moving average at 1.3116 to test for near-term support. Nevertheless, a spokesman for the European Commission said that the group welcomes Ireland’s “ambitious” plan to reduce its budget deficit, and went onto say that the country’s 2011 budget plan is largely in-line with the EU agreement as it shows a “good balance between expenditure and revenue measures.”
At the same time, European Central Bank board member Erkki Liikanen argued that the recent efforts taken on by EU policy makers has yet to restore investor confidence as market participants continue to see a risk for contagion, and went onto say that the emergency measures implemented by the Governing Council will be carried out “until at the least the end of the first quarter of the coming year” in a statement published by the Bank of Finland. As the ECB maintains a cautious outlook for the region, the central bank may turn increasingly dovish going into 2011 as policy makers continue to see a risk for an “uneven” recovery in Europe, and speculation for further easing may materialize over the coming months as the global financial system remains frail. Nevertheless, Germany’s trade surplus unexpectedly narrowed to EUR 14.2B in October from EUR 16.8B in the previous month, led by a 1.1% drop in exports, while industrial outputs in Europe’s largest economy surged 2.9% during the same period amid forecasts for a 1.0% advance. As the expansion in global trade cools, the ECB may look to support the real economy throughout the first-half of 2011, and the central bank may talk down expectations for a rate hike in the following year as it aims to encourage a sustainable.
The British Pound rallied to a high of 1.5803 during the European trade, but the lack of momentum to push above the 20-Day SMA (1.5817) for the second consecutive day could lead the GBP/USD to hold steady throughout the day as the Bank of England is scheduled to announce its interest rate decision tomorrow at 12:00 GMT. The BoE is widely expected to hold the benchmark interest rate at 0.50% and maintain its asset purchase target at GBP 200B as it aims to balance the risks for the region, but the central bank may adopt an increasingly hawkish tone as policy makers expect inflation to hold above the 2% throughout the following year. At the same time, the central bank may see scope to expand monetary policy further as the tough austerity measures are expected to bear down on the recovery, and there could be a growing split within the MPC as board member Andrew Sentance pushes to gradually normalize monetary policy while Adam Posen looks to expand quantitative easing. However, as we expect the BoE to refrain from releasing a policy statement, the market participants may show little reaction to the rate decision, but the GBP/USD will certainly face increased volatility later this month as the MPC is scheduled to release its policy meeting minutes on December 22.
U.S. dollar price action was mixed on Wednesday, with the USD/JPY rallying to a high of 84.16, but we may see a clear directional bias going into the North American trade as equity futures foreshadows a lower open for the U.S. market. A rise in risk aversion should lead the greenback to appreciate against its currency counterparts as it continues to benefit from safe-haven flows, and market sentiment is likely to dictate price action throughout the day as the economic calendar remains fairly light for the next 24 hours of trading. Nevertheless, the Reserve Bank of New Zealand is widely expected to hold the benchmark interest rate at 3.00% this month as the economic outlook remains clouded with uncertainties, and the NZD/USD is likely to face increased volatility later today if we see a shift in the central bank’s fundamental assessment for the isle-nation.
Related Articles: Forex Weekly Trading Forecast - 12.06.10
FX Upcoming
Currency | GMT | EST | Release | Expected | Prior | |
CAD | 13:15 | 08:15 | Housing Starts (NOV) | 171.7K | 167.9K | |
Currency | GMT | Release | Expected | Actual | Comments | |
JPY | 23:50 | Machine Orders (MoM) (OCT) | -0.1% | -1.4% | 2nd straight contraction | |
JPY | 23:50 | Machine Orders (YoY) (OCT) | 8.3% | 7.0% | Pace climbs after touching multi-month low in Sept. | |
JPY | 23:50 | Trade Balance – BOP Basis (yen) (OCT) | 954.2B | 912.9B | Unexpectedly narrows as imports surge 11.5%. | |
JPY | 23:50 | Adjusted Current Account Total (yen) (OCT) | 155.8B | 1462.6B | Falls back modestly after peaking in Sept. | |
JPY | 23:50 | Bank Lending Banks Adjustments (Yoy) (NOV) | -- | -1.8% | Weakens for the 12th month. | |
JPY | 23:50 | Bank Lending Banks ex-Trusts (NOV) | -- | -2.1% | Falls 2.1% for second month. | |
JPY | 23:50 | Bank Lending incl. Trusts (YoY) (NOV) | -- | -2.0% | Falls for 12 consecutive months. | |
JPY | 23:50 | Current Account Balance (YoY) (OCT) | -- | 2.9% | 2nd straight expansion | |
JPY | 23:50 | Current Account Balance Total (yen) (OCT) | 1481.1B | 1436.2B | Falls back modestly after peaking in Sept. | |
JPY | 23:50 | Japan Money Stock M2+CD (YoY) (NOV) | 2.7% | 2.6% | Lowest since June 2009. | |
JPY | 23:50 | Japan Money Stock M3 (YoY) (NOV) | 2.1% | 2.0% | Falls for first time in four months. | |
GBP | 00:01 | BRC Shop Price Index (NOV) | -- | 2.0% | Weakens on lower prices for clothing. | |
AUD | 00:30 | Investment Lending (OCT) | -- | 1.1% | Rises for second month. | |
AUD | 00:30 | Value of Loans (MoM) (OCT) | -- | 2.8% | Highest since September 2009. | |
AUD | 01:30 | Home Loans (OCT) | 0.0% | 1.9% | Improves for four straight months. | |
JPY | 04:30 | Bankruptcies (YoY) (NOV) | -- | -6.3% | Pace continues to slow, nears 2010 lows | |
JPY | 05:00 | Eco Watchers Survey: Current (NOV) | -- | 43.6 | Highest since Aug. | |
JPY | 05:00 | Eco Watchers Survey: Outlook NOV | -- | 41.4 | Levels off near 2010 lows | |
EUR | 07:00 | German Trade Balance (euros) (OCT) | 15.1B | 14.2B | Slips back after spiking in Sept. | |
EUR | 07:00 | German Current Account (euros) (OCT) | 14.3B | 11.7B | ||
EUR | 07:00 | Exports (MoM) (OCT) | 0.0% | -1.1% | 5th contraction in 2010 | |
EUR | 07:00 | Imports (MoM) (OCT) | 1.0% | 0.3% | 7th expansion in 2010 | |
EUR | 07:30 | Bank of France Business Sentiment NOV | 103 | 107 | Highest since Jan ‘08 | |
EUR | 07:45 | French Central Government Balance (euros) (OCT) | -- | -133.1B | Widest deficit in 2010 | |
EUR | 07:45 | French Trade Balance (euros) (OCT) | -4.2B | -3.4B | Narrowest since Feb. | |
EUR | 11:00 | German Industrial Production (MoM) (OCT) | 10.0% | 11.7% | Best since May. | |
EUR | 11:00 | German Industrial Production (MoM) (OCT) | 1.0% | 2.9% | ||
GBP | 11:00 | CBI Trends Total Orders (DEC) | -13 | -3 | Best since June ‘08 | |
USD | 12:00 | MBA Mortgage Applications (DEC 3) | -- | -0.9% | 3rd contraction in last 4 | |
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