USD - The dollar is holding its recent gains amid optimism over the US economy and continuing concern about Euro Zone member countries. The Fed left rates unchanged last week citing gradual continuing improvement in the economic recovery following a string of recent positive economic data. Retail sales last week were reported at an above forecast 1.2% in November, sparking hopes that consumer spending was finally gaining traction. Industrial output climbed an above forecast 0.4% in November while regional reports from the NY and Philadelphia Fed business surveys also reported strong gains in December. Additionally, extension of the Bush tax cuts prompted many economists to upgrade growth forecasts for 2011. Dollar optimism is the mood of the markets heading into year end with hopes of a continuing rebound in economic activity in the US.
EUR- The euro remains under pressure over continuing concerns over the health of Euro Zone member countries. The single currency hit record lows vs. the Swiss franc and Australian dollar overnight and declined to 2-week lows vs. the dollar at $1.3096. The declines come after Moody's downgraded Ireland's debt by 5 notches citing concerns over its weakened banking sector. Concerns that Spain and Portugal may also require assistance next is pressuring the euro and heightening risk aversion. Given this, the euro is likely to suffer further declines amid thin holiday trading conditions.
GBP - Sterling is trading within Friday's range and is a mid-performer having modest gains against the USD. GBP is trading within the lower end of its three month range with support at the 200-day moving average of 1.5390 still a ways off. There was no fundamental data today but leading into the holiday, the market will be watching the BoE minutes and final Q3 GDP, both released later this week. Expect choppy trading with market liquidity drying up in anticipation of the holiday week ahead.
JPY - The yen is a mid-performer today, having gained 0.25% against the USD. On a year-to-date basis, the yen is the best performing major, having gained 11% against the USD. The primary gains came until the mid-fall, when USDJPY reversed course. As we move into the holidays, USDJPY has stabilized close to 84. Today is the first of a two day BoJ board meeting, with the central bank's decision and update to be released tomorrow. No major developments are expected from the meeting. Near-term support lies at the 100-day moving average of 83.53.
CAD - CAD is up slightly against the USD and trading in a typically restrained range. After Friday's topside breakout in USDCAD which pushed the pair up through the 50-day moving average at 1.0134, the pair is currently trading back below that moving average. Speculative positioning for CAD is heading into the holidays around its 2010 average net long level (33.4K contracts). Both gross longs and shorts are sitting around their average levels, indicative of the sustained and almost unbroken net long speculative interest in CAD throughout 2010. Expect CAD to remain a popular trade for currency speculators in 2011, and though there may not be the heavy gross long interest in CAD that was the case during the early to mid parts of 2010, we do expect to see fairly consistent and sustained net long positioning.
MXN - The Mexican peso remained relatively unchanged against the dollar before the release of trade, unemployment, and CPI data this week. Mexican industrial production figures slowed for the month of October, with expectations held at a growth rate of 5.4% y/y, a deceleration from the September figure of 6.6% y/y. Actual figure was surprisingly negative at 3.7% y/y, the lowest gain since December 2009. The data coupled with the anticipation of further trade balance deficit of -995M vs. the previous -814M should carry a negative outlook for the peso in the near term.
AUD - The Australian dollar traded slightly lower before the Reserve Bank of Australia's release of the board's December interest rate setting. Policy makers along with Governor Glenn Stevens have commented that interest rates are appropriate as inflation will likely be contained through the middle of next year, spurring traders to cut bets on further increases. Despite rising commodity prices this year, demands of raw material exports may not be enough the sustain the support for the Australian dollar's valuation according to many analysts