There are signs of optimism everywhere and January is starting off the year with much of it.
Business leaders and key government and organization officials trekked to Davos, Switzerland for the annual meeting of the World Economic Forum. This year, the WEF was spread across five days and it concludes today, January 27. In general, the ‘crisis mood’ is over and there was a general sense of optimism. However, top officials were quick to caution that the right policy actions should be made and pursued to further the global economic recovery. "Do not relax," was one of International Monetary Fund chief Christine Lagarde’s parting words in a WEF closing panel.
Meanwhile, ECB chief Mario Draghi opined the worst of the debt crisis in the Eurozone may be over, and said in a Frankfurt-held speech that the “darkest clouds” have subsided, which he attributed to the decisive policy-related actions made. “We can begin 2013 on a more confident note,” Draghi said.
Notable economic data developments include Germany’s ZEW report of a robust rise of 31.5 in its ZEW Economic Sentiment data for January, much stronger than the 12.2 forecast and is about four-fold of the prior month’s reading. This comes after negative readings from June to November and is the highest reading since May 2010’s 45.8. Euro-area’s ZEW Economic Sentiment also came in stronger at 31.2 versus 14.1 forecast.
UK’s Claimant Count Change data for December also came in with a surprise fall of 12,100, which makes it the lowest jobless claims reading since mid-2011. This rare display of economic strength will be monitored in the coming months to see whether it was a minor blip or the start of a favorable economic trend.
A handful of other key data displayed notable positive readings, such as Germany’s Ifo Business Climate, Flash Manufacturing PMI and Services PMI; US Unemployment Claims; Euro-area Current Account; and US Flash Manufacturing PMI. China’s HSBC Flash Manufacturing PMI also reached a two-year high for its January data.
Gold continued to range until the midweek before swooning lower to end the week at $1,658. The $1,700 bear defense had been successful and now all eyes are on the $1,600-50 area. If the $1,650 support breaks down, they will target January’s five-month low at $1,625.
Oil trading on Monday was as quiet as it can get when it traded a mere $0.45 range after trading an equally tight $0.76 trading range on Friday. All these came after price vaulted above the $94.87 resistance last week and rose to the mid-$96.00s. It ended this week with its seventh consecutive weekly gain, its best run in nearly four years. If the upmove persists in to the coming weeks, the next area of contention will come in at the $98-$100 area. Continued economic optimism will prop up black gold.
EURUSD started off the week with an uncharacteristic 32 pip trading range on Monday. The subsequent two days remained confined to the broader 1.3260 – 1.3400 range set on January 11. Price action change on Thursday as price managed to close the day just below 1.3400 and it made a follow-through upmove, and succeeded in breaking toward new highs to end the week at 1.3461, ahead of a 1.3478 top which is just 7 pips shy of pushing for a 13-month high. Bulls are still keen on pressing price higher to the 1.3500 and 1.3600 levels.
USDJPY traders were able to set two milestones this week: a daily and weekly close above the 90.00 level for the first time in more than two years. Traders need to recall that price set off a precipitous fall when price fell below the 90 level back in 23 June 2010, which pressured price down to a 75.56 low on October 2011.
GBPUSD continued to weaken after price fell below the all-important 1.6000 level and the 200-day moving average found at 1.5903. Price made back-to-back new lows on Thursday and Friday, after the three-day consolidation which started on Monday broke down and bulls succumbed to intense bear pressure. The fall on Friday conquers the five-month low for Cable, and the last bastion of support for bulls now comes at the 1.5700-50 area. A break of this level will descend price into a potential chaotic fall into the 1.5300-1.5500 lows.
The Week Ahead
Monday opens the week with only a few key releases from the US – Durable Goods Orders and Pending Home Sales. The soon-outgoing Bank of Canada Governor Mark Carney will also impart a speech in Zurich.
On Tuesday, the market will watch for New Zealand’s Trade Balance data, Australia’s CB Leading Index, NAB Business Confidence, Gfk German Consumer Climate, US S&P/Case-Shiller Composite-20 House Price Index and US Consumer Confidence.
On Wednesday, there are Japan’s Retail Sales, Switzerland’s KOF Economic Barometer, Spain’s Flash Quarterly GDP, Euro-area Retail PMI, UK’s Net Lending to Individuals data, and Italy’s 10-year bond auction. US will also release ADP Non-Farm Employment Change, Advance GDP, crude oil inventories, Federal Funds Rate, and FOMC Statement. Germany’s Bundesbank President Weidmann will also give a speech.
On Thursday, New Zealand will announce its Official Cash Rate and Rate Statement. Other news releases include Japan’s Manufacturing PMI, Average Cash Earnings, and preliminary Industrial Production; UK’s Gfk Consumer Confidence and Nationwide HPI; Australia’s HIA New Home Sales, Import Prices, and Private Sector Credit; Germany’s Retail Sales, Unemployment Change, and preliminary CPI; France’s Consumer Spending; Canada’s GDP, RMPI, IPPI; and US Unemployment Claims, Core PCE Price Index, Employment Cost Index, Chicago PMI, Personal Spending, and Personal Income.
February starts this Friday with a host of releases: Japan’s Household Spending and Unemployment Rate; Australia’s PPI; China’s Manufacturing PMI and HSBC Final Manufacturing PMI; Switzerland SVME PMI; Euro-area, Spain, Italy, UK Manufacturing PMI; Euro-area CPI and Unemployment Rate. The US will also release Unemployment Rate, Non-Farm Employment Change, Average Hourly Earnings, Final and ISM Manufacturing PMI, Construction Spending, Revised University of Michigan Consumer Sentiment.