Daily Summary on USD, EUR, JPY, GBP, AUD, CAD and NZD

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December 20, 2012 6:23 AM EST

  • USD is mixed as US housing data came short of expectation and US debt talks come near a close.
  • EUR traded near an 8-1/2 month high on better-than-expected German data and some positive headlines on Greece.
  • JPY plummeted, reaching a 20-month low against the USD as report showed trade deficit widened in November.

USD - The US dollar is mixed against most major currencies as investors lean towards the belief an agreement will be reached on the "fiscal cliff" by year-end. The biggest threat to the current pressure against the USD remains the fear US lawmakers would not agree on a deal to avoid mandatory tax increases and spending cuts on time. However, the risk appears to be diminishing after both sides made compromises in recent days. Should US policymakers reach an agreement, most strategists would say currencies that tend to gain on a better global growth outlook, like the EUR and AUD, would be well supported. Domestically, US housing starts slipped 3% to 861k in November, a weaker-than-expected reading after revisions pulled October's tally down a bit.  However, housing starts are on pace to average about 775,000 units in 2012, up 27% from 612,000 last year. Meanwhile, building permits topped expectations, rising 3.6% to 899,000 annualized units, the highest level since July 2008.

EUR - The euro surged to an 8-1/2- month high vs. the USD, lifted by the better-than-expected German business confidence data and increasing optimism about the debt troubles in Greece. Germany's Ifo survey showed business sentiment rose for a second straight month in December, raising hopes Europe's largest economy will get back on track. The IFO report is a leading indicator of how the German and European economy will perform in coming weeks with the advantage of releasing the same month its taken. Morale at German businesses climbed in December as their confidence in the outlook rose at its fastest rate in 2-1/2 years, boosting hopes Europe's largest economy will bounce back quickly after a weak end to 2012. The Munich-based Ifo reported its business climate index rose to 102.4 in December, which was up from 101.4 in November and the highest level in five months. Meanwhile, ratings agency S&P raised Greece's credit rating after the country completed its bond buyback program. The agency gave Greece a stable outlook given the Eurozone countries' commitment to support Greece's membership in the European bloc. Upbeat domestic headlines coupled with signs of progress in US budget talks have added support for the currency.

GBP - The sterling is stronger against the dollar, trading slightly below the 1.6300 line, its highest point this year.  The BoE Monetary Policy Committee voted 9-1 yesterday against raising asset purchases.  David Miles was again the only MPC member to support greater expansion in the asset purchase program, voting for a 25B pound increase.  The MPC decided to keep its current interest rate at 0.50%, as well as keep its bond purchases at 375B.  Inflation rates will see an increase above the 2% target in the upcoming year, resulting in a higher risk for food prices, and other consumer goods.  The MPC's decision yesterday shows a stagnant economic outlook for the British economy.  Despite the current Eurozone crisis dragging the British economy, the recent MPC decisions will not foster more economic growth.  However, the MPC's decision to not inject more stimulus into the economy should result in the pound being well supported going into the New Year.

JPY - The JPY dropped against the USD hitting new 20-month low after a Japanese government report showed the trade deficit widened in November. The yen has also continued to weaken further with ongoing improvement in investor risk sentiment driven by heightened expectations that a political agreement to avert the US fiscal cliff is near and building expectations that the Bank of Japan will ease monetary policy at tomorrow's meeting. The Bank of Japan is likely to provide further accommodation on Thursday by increasing its 91 trillion yen asset purchase program, adding to the 10 trillion expansion from September and the 11 trillion expansion from October. Prime Minister Shinzo Abe has hinted at deregulation in a television interview, suggesting that structural reform is likely to accompany the BoJ's expansionary policy.

Commodity Currencies - Commodity currencies took a step down, pulling away from a recent rally against the USD last week. The Canadian dollar was weaker against its US counterpart, trending with other commodity currencies, as many investors looked to book profits ahead of the holidays following a recent rally. The Canadian wholesale trade beat expectations reporting a +0.9% for October, beating its prior month at -1.5%.  The AUD/USD has dropped to session lows as the pair fell below its support levels risking more significant setbacks, heading towards its 50 and 100-day SMA cross of 1.0404. The New Zealand dollar slipped 0.3% to a session low, retreating from a 15-month high which was hit on Friday of last week.

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