Weekly outlook: December 19 - 23
Forexpros - Last week saw the euro post its biggest weekly drop in more than three months against the U.S. dollar, tumbling to an 11-month low amid concerns over mass credit ratings cuts and an economic slowdown across the single currency bloc.
The euro’s losses came after a European Union agreement reached earlier in the month disappointed expectations for a comprehensive solution to resolve the debt crisis in the region.
The single currency fell to an 11-month low against the greenback mid-week before edging higher, but the threat of ratings downgrades meant investors remained wary.
The euro found support after an action of Spanish government debt on Thursday met with solid investor demand.
The country sold EUR2.5 billion of five-year bonds at an average yield of 4.02%, down sharply from 5.27% at a similar auction last month. Spain also auctioned EUR1.4 billion of 10-year bonds at a yield of 5.54%, compared to 6.97% last month.
Spain's performance contrasted sharply with Italy on Wednesday which saw yields on five year bonds surge to euro-era highs.
Market sentiment was also helped by Thursday’s stronger-than-expected U.S. employment and manufacturing data.
Earlier in the week, the Federal Reserve warned that market turbulence stemming from the crisis in the euro zone posed a threat to the U.S. economy but stopped short of indicating fresh stimulus measures to shore up growth.
On Friday, Fitch Ratings announced that it lowered France’s rating outlook and put six other euro zone members on review for a downgrade, saying that a “comprehensive solution” to the euro-zone crisis is “technically and politically beyond reach.”
Earlier this month, Standard and Poor’s placed the credit ratings of 15 euro zone members, including France, Germany, Italy and Spain on negative watch, pending possible downgrades.
Elsewhere, the euro fell sharply against the Swiss franc on Thursday, after the Swiss National Bank kept its minimum exchange rate target of 1.20 per euro unchanged and reiterated its pledge to defend the level with the "utmost determination."
The SNB warned of a highly uncertain global economic outlook, saying that a further escalation of the debt crisis in the euro zone could not be ruled out. The central bank also kept its key interest rate close to zero.
In the week ahead investors will be keeping a close watch on Tuesday’s report on German business climate, to assess the impact of the debt crisis on the region’s largest economy. Meanwhile, the U.S. is to release key reports on the housing sector, durable goods and jobless claims.
Ahead of the coming week, Forex Pros has compiled a list of these and other significant events likely to affect the markets.
Monday, December 19
New Zealand is to release data on business confidence as well as a report on consumer sentiment, an important indicator of economic health.
The U.K. is to publish industry data on house price inflation, a leading indicator of the housing industry’s health. Meanwhile, the Bank of England is to release its quarterly bulletin.
The euro zone is to produce official data on the current account, while later in the day, ECB President Mario Draghi is to speak; his comments will be closely watched for any hints on the future direction of monetary policy.
Also Monday, Canada is to produce official data on wholesale sales, a leading indicator of consumer spending.
Tuesday, December 20
The Reserve Bank of Australia is to publish the minutes of its most recent policy setting meeting, which contain insights on current economic conditions from the bank’s perspective. The country is also to publish an index of leading economic indicators.
Elsewhere, New Zealand is to release government data on the current account and visitor arrivals.
The U.K. is to produce two separate reports on consumer confidence, a leading indicator of consumer spending, as well as industry data on retail sales.
Switzerland is to publish official data on the trade balance, the difference in value between imported and exported goods over the month. In the euro zone, Germany is to release official data on producer price inflation, consumer climate and business climate.
Canada is to release government data on consumer price inflation, which accounts for the majority of overall inflation.
Later Tuesday, the U.S. is to publish official data on building permits, an excellent gauge of future construction activity, as well as a report on housing starts.
Wednesday, December 21
Australia is to publish an index of leading indicators, which is designed to forecast the direction of the economy. Later in the day, New Zealand is to publish government data on third quarter gross domestic product, the broadest measure of economic growth and the foremost indicator of the economy's health.
Elsewhere, the Bank of Japan is to announce its benchmark interest rate; the announcement is to be followed by a closely watched press conference to discuss monetary policy. Japan is also to publish official data on the trade balance.
In the U.K., the BoE is to release the minutes of its most recent policy setting meeting, which contain insights on current economic conditions from the bank’s perspective. The bank is also to produce data on public sector net borrowing.
Canada is to release government data on retail sales, the foremost indicator of consumer spending, which accounts for the majority of overall economic activity.
Also Wednesday, the U.S. is to produce industry data on existing home sales, a leading indicator of economic health, as well as data on crude oil stockpiles and the treasury currency report.
Thursday, December 22
In Japan, BoJ Governor Masaaki Shirakawa is to speak; his comments will be closely watched for any hints on the future direction of monetary policy. Meanwhile, the BoJ is to publish its monthly report.
The U.K. is to publish official data on the current account, as well as revised data on third quarter GDP growth.
The U.S. is to publish its weekly report on initial jobless claims, a leading indicator of economic health. The country is also to produce revised data on third quarter GDP, while the University of Michigan is to release revised data on consumer sentiment and inflation expectations.
Friday, December 23
Markets in Japan are remaining closed in observance of the Emperor's Birthday.
The U.K. is to release industry data on mortgage approvals, a leading indicator of housing market demand.
Later in the day, Canada is to produce its monthly report on GDP growth. The U.S. is to round up the week with official data on durable goods orders, a leading indicator of production as well as data on personal spending income, personal spending and new home sales.
(www.forexpros.com)
