It was a shortened week in which the market welcomed the new year with optimism and cheered recent developments particularly in the United States, the world’s prevailing biggest economy.
The dreaded US fiscal cliff did not come to fruition, thanks to the moves by US Congress and US leaders just in the nick of time. Obama along with US leaders and lawmakers continued to pursue negotiations until the remaining days of 2012. In the end, a deal was struck by Vice President Joe Biden and Senate’s Kentucky Republican leader Mitch McConnell on New Year’s Eve, which House of Representatives and Senate jointly approved on January 1. Their collective move averted the activation of $600-billion worth of tax hikes and federal spending cuts which would have a domino effect on the US economy.
The US Bureau of Labor Statistics reported on Friday that the labor market added 155,000 jobs in December, slightly better than the median estimate of economists surveyed. November’s reading was also revised higher, from 146,000 to 161,000. Meanwhile, the unemployment rate came in at 7.8 percent, matching a four-year bottom.
Like currencies, commodities such as gold and oil experienced gaps to start the new year.
Gold started off the new year with a $15 move up, however, it was only temporary. This was followed by a sustained down move towards $1,625 on Friday, breaking the four-month December low in the process. Gold bounced and closed below the week’s midpoint range at $1,655. It’s too early to say what direction gold wants to take at this point.
Oil spent most of its time comfortably above $90.00 throughout the week. It spent most of its time around the upper-$92.00s, in fact. The New Year gap was only filled on Friday, which was quickly followed by a bounce back to the $93.00s where it closed the week. Buyers have succeeded in hitting $93.50, and soon we will find out if they would be able to take a foothold of $94.00.
EURUSD traded the first week of 2013 with a gap and dive. The pair failed to retest the eight-month December high at 1.3307. Bears kicked in to dump the pair nearly 300 pips lower to the 1.3000 level. Friday gave a typical respite and price bounced back slightly to 1.3088 before closing the week at 1.3067. 1.3000 remains a key area for bears, while overhead resistance comes in at 1.3100-70.
USDJPY offered a different story as it formed two runaway gaps which remains unfilled since Christmas. The pair has been mired in a multi-month range and it seems ready to move beyond this now. Since the pair has blasted through 85.00 to 88.00, it is now poised to clinch the 90.00 level. However, we could get a sharp downspike or well-deserved consolidation before that level is reached.
Mimicking EURUSD’s price action, GBPUSD also did a gap-and-dive this week. Unlike EURUSD, though, GBPUSD clinched its four-month high this week, rising to 1.6338 before the eventual dive eight pips shy of the 1.6000 level. Based on current price action on this pair, 1.5800/1.5900 is a downside possibility, while 1.6400 could be a near-term target for bulls.
The Week Ahead
After the recent long weekends thanks to the Christmas and New Year celebrations, the market will be fully back online in the coming week.
Monday will be the release day of Switzerland’s Currency Reserves and Canada’s Ivey PMI. Eurostat will also release the Euro-area PPI.
On Tuesday, the market will look at the Trade Balance data from Australia, Germany, and France; Switzerland’s and Italy’s Unemployment Rate; Eurozone Retail Sales and Unemployment Rate; Germany’s Factory Orders; and US Consumer Credit and IBD/TIPP Economic Optimism data.
On Wednesday, Trade Balance data from China and the UK; Australia’s Retail Sales; China’s New Loans; Germany’s Industrial Production; and US Crude Oil Inventories and 10-year bond auction.
On Thursday, New Zealand will release its Trade Balance data, while Australia will have its Building Approvals data. Other releases include France’s Industrial Production; UK’s Asset Purchase Facility, Rate Decision and Statement; ECB’s Interest Rate Decision and Press Conference; Canada’s Building Permits; and US Unemployment Claims and 30-year bond auction. FOMC Member’s George and Bullard will also give their respective speeches.
For Friday, Japan will release Current Account and Bank Lending data. Other countries will have their own economic releases out, such as China’s CPI and PPI, UK’s Manufacturing and Industrial Production, Switzerland’s CPI, and trade Balance data from the US and Canada.