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Analysis

Italy’s Elections and Eurozone Unemployment Rate Cause Euro Decrease

The electoral earthquake in Italy’s election last weekend resulted in a hung parliament as no single party held the majority after election results came out early this week.

The 5-Star Movement fought the more-established Democratic Party (PD) headed by Pier Luigi Bersani and the People of Freedom (PDL) party led by Silvio Berlusconi, and yet 5-Star surfaced as Italy’s largest party. Due to this result, 5-Star party leader Beppe Grillo fleshed out his party’s conditions to support a new government, namely changing the electoral law, cutting politicians’ expenses, and finally setting a two-term limit for Italy’s parliamentarians. Grillo went on to say that Italy is “overwhelmed, not by the euro, but by debt and expects another election in the next six months where he is confident that his party would emerge as a majority winner.

In other news, US CB Consumer Confidence, Pending Home Sales, New Home Sales, and Germany’s Retail Sales posted strong readings, while New Zealand Trade Balance, Italy and Euro-area Unemployment data disappointed with worse-than-expected figures. China’s Manufacturing PMI data grew less than expected and came in just a hair above the 50 borderline.

Commodities

Gold buyers did not make any progress this week as price is back down in the $1,500s after failing to conquer the $1,600 level. Buyers failed to follow through after price rose to $1,619 on Tuesday, and so the bears took over until Friday. This is a worrying sign for bulls; however, they can negate this by pressing price higher next week. Near-term target is $1,700.

Oil fared much worse than Gold this week, with the former’s price making a nearly $2 drop on Friday which almost breached the $90 level. The problem area for bulls came in at $94, and the rejection off this area on Monday was nasty and spelled the trend for the entire week. Bears have potentially unlock the potential for a journey to $83-$85.

Currencies

EURUSD witnessed a key down-week this week as sellers put the final nail in the coffin after 1.3300 held during the start of the week. Bears made a big downward push on Monday and price was unable to make a significant recovery since then. The pair stayed close to all-important 1.3000 level mid-week and it finally gave way on Friday, with price reaching as low as 1.2966 before the week ended. Bulls need to neutralize the momentum by taking price back above 1.3200 this coming week.

Not much happened in USDJPY this week as price remain engulfed between the 90 and 94 areas. The pair was stuck near the 92s during the first four days, but price managed to climb higher and ended the week in mid-93s. Wait-and-see mode if 94 gives way this time.

As predicted in the previous article, price did pursue the 1.5000 level and manage to breach it during Friday’s trading. The pair fell 235 pips to reach 1.4985 before settling back in the 1.5000s to close the week. It would be a surprise if bulls would be able to get price back up to 1.5300 in the new trading week, but in reality that is their critical task right now.

The Week Ahead

Monday’s news highlights come early with Australia’s Building Approvals, Company Operating Profits, ANZ Job Advertisements; Spain’s Unemployment Change; UK’s Construction PMI; Euro-area PPI; Eurogroup Meetings; and speeches by US FOMC’s Yellen and Powell.

On Tuesday, there are Australia’s Current account, Retail Sales, Interest rate announcement and RBA statement; UK BRC Retail Sales Monitor, Halifax HPI; Services PMI from Spain, Italy, UK, and Euro-area; ECOFIN Meetings; and US ISM Non-Manufacturing PMI.

Wednesday is relatively concise this week but nonetheless teeming with key news like Australia’s GDP; Bank of England Governor King’s speech; US ADP Non-Farm Employment Change, Beige Book, and Factory Orders; Bank of Canada Rate and Rate Statement, Ivey PMI.

On Thursday, there is a lot of news to digest, namely Australia’s Trade Balance; Japan’s Interest rate announcement and statement, BOJ Press Conference; SNB Chairman Jordan’s speech; BOE Rate Announcement and Statement; ECB Rate Announcement and Press Conference; Canada and US Trade Balance; and US Unemployment Claims.

Finally on Friday, there are Japan’s Final GDP and Current Account; China’s Trade Balance; Germany’s Industrial Production; Canada’s Employment data, Labor Productivity; and US Employment data.

Italians Vote; UK loses AAA Rating

Ratings agency Moody’s surprised the market on Friday with a downgrade of UK’s credit rating. UK was slapped with a downward revision to  AA1 from AAA. Moody’s expressed that the rating cut was attributed to the persistent weakness in the growth outlook and it expects “sluggish growth to extend into the second half of this decade.”

Italians walk to the polls today and tomorrow to decide their country’s fate and future. Italian voters would choose 615 members to comprise the Chamber of Duties, and another 315 member for the Senate. Italy is Euro-area’s third largest economy and the market is keen to monitor the results and potential after effects of the election results going forward. An inconclusive elections result could hurt the Euro as Italy desperately needs economic reform and stability. Key runners in this election are Pier Luigi Bersani, Mario Monti, and Silvio Berlusconi, with many favoring a Bersani win.

Commodities

It was another tough week for gold bulls as price descended further in the $1,550s. After price breached the $1,600 level, bulls were barely able to bring price back above it. Price action-wise, we could see the $1,526 12-month lows soon.

Oil finally succumbed to intense bear pressures this week, after bulls have been unable to maintain a hold of the $98 level for four straight weeks. The week started off with a drive higher towards the mid-$97 where the bears started to paw down on willing buyers. This somehow resulted to a domino down move breaking the $95 support area which held for nearly a month. Now, price is back down to prices reached in early January and price could still be enthusiastic enough to move towards the $90 level.

Currencies

EURUSD continued to press lower after an ascending channel, which coincides with the crucial support level at 1.3300, broke this week. Price declined by 160 pips and reached a 1.3144 low before a minor bounce on Friday. Price needs to trek higher toward 1.3300 in order for bulls to rectify the situation.

USDJPY finally settled down this week, after many weeks of over-enthusiasm from the buyers. The pair traded a mere 144 pips and traded inside last week’s range. Bulls must be worried as this is the third week that they were unable to close above the 94 level. Bears could launch a move to 92 soon.

GBPUSD bulls had a disastrous week as price 5 consecutive lower highs and fell 680 pips in 2 days. The break of the 1.5200 level and close at 1.5160 this week is extremely significant as this is the first in more than 2 years! Traders should not fight this trend and would be better off at the sidelines. Price could reach – and breach – the 1.5000 level any time soon.

The Week Ahead

Monday’s news highlights are China’s HSBC Flash Manufacturing PMI, the Italian Parliamentary election, and speeches from Bundesbank President Weidmann and Bank of Canada’s Carney.

On Tuesday, we will hear about New Zealand’s Inflation Expectations; speeches from RBA’s Debelle, UK MPC’s Bean, and Fed Chairman Bernanke; UK CBO Realized Sales, Canada’s S&P/CS Composite-20 HPI; US CB Consumer Confidence and New Home Sales.

Wednesday is again packed with a raft of news like New Zealand’s Trade Balance; Japan’s Retail Sales; Eurozone M3 Money Supply; KOF Economic Barometer; UK Second Estimate GDP; US Pending Home Sales, Durable Goods Orders; ECB Draghi’s speech.

On Thursday, New Zealand’s ANZ Business Confidence, Japan’s Preliminary Industrial Production; Australia’s Private Capital Expenditure; Switzerland’s GDP; Eurozone and Germany’s CPI; German Unemployment Change; Canada’s Current Account; US Unemployment Claims and Preliminary GDP.

Finally on Friday, there are Japan National and Tokyo Core CPI, Capital Spending and Household Spending; China, Spain, Italy, UK, and Eurozone Manufacturing PMI; Eurozone Unemployment Rate; Canada GDP; US Personal Spending, Core PCE Price Index, and ISM Manufacturing PMI.

G-20 Meetings Focused on Currencies; BOJ Retains Rates

Finance heads of 20 advanced nations, or the G-20, have recently congregated to discuss pressing global issues. The two-day meeting concluded in Moscow on Saturday with particular attention put on the currency market. G-20 finance ministers took a hard line on currencies without mentioning any particular country and expressed concerns about governments making efforts to influence exchange rates. According to one notable statement, G-20 promised “not to target our exchange rates for competitive purposes.” Japan has been criticized by several analysts and officials for driving down Yen, as Prime Minister Abe is keen on employing looser monetary policy to fight deflation. Bank of Japan Governor Shirakawa, however, said yesterday that the G-20 communique is “absolutely in the same spirit as our monetary policy.”

Several key central banks have announced interest rates and policy decisions in the last three weeks, and this week it was Bank of Japan’s turn. BOJ retained its overnight call rate at the range of 0 and 0.1 percent. Bank of Japan made known that growing signs of improvement in advanced economies are present but they remain cautious at the same time.

Commodities

As expected, gold has made a decisive move this week, slamming price $72 down to break out of the consolidation. This is its biggest weekly range move in more than 6 months and traders could be in for something here. Gold fell below the $1,600 level for the first time since around August as recent data out of China and the US are showing signs of economic recovery, prompting a reduced demand for gold as a haven. The next area of contention on the downside would come in around the lower $1,500s.

Oil also made a significant move this week after buyers failed to prop demand above the $98 level. Sellers brought price back down toward the low-$95s on Friday and closed the week just under the $96 level. Friday’s $2+ daily move was its biggest since late December, and bears seem keen on keeping a lid on prices in the coming weeks. It would be interesting to see if bears would be able to reach the $90-$93 area soon. Oil has declined because of concerns that fuel demand may weaken, after reports of weak US and Euro-area data, particularly US industrial output and Eurozone exports.

Currencies

EURUSD made progress in the first three days of the week as price made new highs throughout. However, the ongoing development halted after buyers hit a roadblock above 1.3500; that is when price spiraled back down and created new weekly lows. 1.3350 gave way in the process and price ended the week at 1.3360. More buyers should support price and bring it back up above 1.3400 this coming week to negate any developing bear momentum.

USDJPY resumed its upmove this week and went on to create new highs. The pair hit a new high of 94.45 at the start of the trading week, but price action waned for the rest of the week. Price is getting heavier and sellers kept a lid on price at 93.80 for the last three days. Buyers must maintain their enthusiasm moving forward, otherwise bears would jump in to control price action and send it back toward the 90 level.

It was practically a one-way trading for GBPUSD this entire week as the 1.5600 fortress gave way to insurmountable bear strength. In the fundamental front, BOE Governor King said the nation faces “big challenges” and inflation is expected to remain above the 2 percent target despite possibility of weak growth moving forward. Confederation of British Industry also lowered its expectation of growth for 2013.

The Week Ahead

The week will start out with another quiet Monday, and the only notable news releases are Australia’s New Motor Vehicle Sales for January, China Foreign Direct Investment, Euro-area Current Account, and ECB President Draghi’s speech. US banks are closed to commemorate President’s Day (Washington’s birthday).

Tuesday will provide more action in the form of Monetary Policy Meeting Minutes from the BOJ and RBA, Germany and Euro-area ZEW Economic Sentiment, Canada’s Foreign Securities Purchases and Wholesale Sales, and US Mortgage Delinquencies.

On Wednesday, there are New Zealand’s PPI Input and Output, and speech from RBNZ Governor Wheeler; Australia’s CB and MI Leading Index and Wage Price Index; Japan’s Trade Balance and All Industries Activity; German PPI, and CPI from Germany and France; UK Claimant Count Change, Unemployment Rate, MPC Policy Meeting Minutes, and Average Earnings Index; Switzerland’s ZEW Economic Expectations Survey; US PPI, Building Permits, Housing Starts, Fed’s Meeting Minutes.

Thursday’s action begins in the European session with Switzerland Trade balance; Flash Manufacturing PMI and Flash Services PMI for Euro-area, France, and Germany; UK CB Industrial Order Expectations, Public Sector Net Borrowing; 10-year bond auctions for Spain, UK, and France; US Unemployment Claims, CPI, Philly Fed Manufacturing Index, Flash Manufacturing PM, crude oil inventories, Existing Home Sales, and speech from Fed’s Bullard.

Friday will remain active with RBA Governor Stevens’ speech; New Zealand Credit Card spending; Italy Retail Sales; Germany’s Final GDP and Ifo Business Climate; Canada’s CPI and Retail Sales data; Belgium NBB Business Climate; and US FOMC member Powell’s and Tarullo’s speech.

Favorable US Data Welcomes February

The second week of central bank interest rate decisions has ensued. Both the Reserve Bank of New Zealand and US Federal Reserve maintained their rates at 2.50 percent and less than 0.25 percent, respectively. A few more central banks will make their announcements this coming week.

On Tuesday, New Zealand’s Trade Balance report showed the country created a $486 million trade surplus back in December, its largest export percentage-based December surplus since December 1991.

On Wednesday, S&P/Case-Shiller House Price Index matched median projection for a 5.5 percent climb. This was another favorable indication for the US housing market, brought on by mortgage rates being near its record low.

Spain and Japan published disappointing data this week. Japan’s published weak readings in Retail Sales, Preliminary Industrial Production, Average Cash Earnings, and Housing Starts. Contraction was reported in manufacturing output, employment, and new orders in Japan. For Spain, recession has deepened further as evidenced by the 0.7 percent decline in Gross Domestic Product for the December quarter of 2012, according to the Spanish National Statistics Institute. Spain’s manufacturing PMI climbed to 46.1 but output and jobs continued to be cut, a Markit report showed. On the bright side, the Spanish export sector has been giving positive readings lately.

Friday’s US Non-Farm Employment Change had its actual figure miss economists’ expectations, but the silver lining came from a much better revised reading for January to 196,000. Revised University of Michigan Consumer Sentiment, Construction Spending, and ISM Manufacturing PMI also reported survey-beating figures.

Commodities

It was another rough week for gold. Price bounced around a $30 area between $1,650 and $1,680 for a third consecutive week, indicating unwillingness of each side to make decisive moves at this point. The weekly close has a slight bearish tone and we could see a move back to the lower-$1,600s next week. Bulls have to exert more and make a decisive trek back to the $1,700 level.

Oil traders have more to celebrate this week. Despite the easing that happened in the last three trading days, oil has made a bullish weekly close for eight consecutive weeks. The next area of contention remains at the $98-$100 area. Friday’s move back toward $96.50 should be kept in mind, though.

Currencies

EURUSD’s Friday resistance at the 1.3470s kept a lid on prices this week, albeit temporarily. Once price overcame this level on Tuesday, it carved a relatively smooth move higher. The pair reached a 1.3710 high after a nasty whipsaw which fleetingly brought price back to the area of the weekly open. Now, Euro is on track to proceed higher to its near-term ultimate target area of 1.4000 – 1.4500. A retracement back to 1.3400 – 1.3600 cannot be ruled out.

USDJPY consolidated during the first three days of this week, bouncing around and trading within Friday’s daily range. On Thursday, price ticked higher and reached fresh highs which continued on Friday, reaching another record high and came close to touching the 93.00 level. There is not much in the way of bulls to reach their next target, the 95.00 handle. However, any dips at this point would not be surprising.

Throughout this week, GBPUSD buyers made a concerted effort to bring price back toward the all-important 1.6000 level. Given the bearish environment, they only managed to push price 200 pips higher. Buyers were unable to reach and break above 1.5900, so bears took advantage and sent price tumbling back to the week’s lows in less than one day. Friday’s daily and weekly close below 1.5700 is definitely a bad sign and bulls should really stay out. The 1.5200 – 1.5500 area now comes back in the frame.

The Week Ahead

Monday opens the week with key releases such as Australia’s Building Permits; UK Halifax House Prices and PMI Construction; Spain’s Unemployment Change, Euro-area Sentix Investor Confidence, and PPI; and US Factory Orders.

On Tuesday, the market will watch for New Zealand’s Labour Cost Index; Australia’s House Price Index, Trade Balance, Reserve Bank of Australia Interest Rate Decision and Rate Statement; China’s HSBC China Services PMI; Switzerland’s Exports, Imports, and Trade Balance data; Markit Services PMI for Euro-area, Spain, Germany, France, UK, and Italy; Italy’s CPI; Euro-area Retail Sales; US Redbook Index, ISM Non-Manufacturing PMI, and IBD/TIPP Economic Optimism.

On Wednesday, New Zealand celebrates Waitangi Day. Notable economic release during the Asian session will be Australia’s Retail sales data. Later on, there is Germany’s Factory Orders, Canada’s Ivey PMI, and US EIA Crude Oil Stocks change.

Thursday is the most news-packed with Australia and New Zealand’s Employment Change and Unemployment Rate; Australia’s AiG Performance of Construction Index; Japan’s Foreign Bond Investment, Foreign Investment in Japan Stocks, Leading Economic Index, and Machinery Orders; European Council Meeting; Switzerland’s SECO Consumer Climate and Foreign Currency Reserves; France’s Trade Balance, Imports, and Exports; Spain’s Industrial Output; UK Trade Balance, Manufacturing Production, and Industrial Production; European Commission’s Economic Growth Forecasts; Germany’s Industrial Production; BOE’s Rate Decision and Asset Purchase Facility; ECB’s Rate Decision, Monetary Policy Statement, and press conference; Canada’s Building Permits and New Housing Price Index; US Consumer Credit Change and Initial Jobless Claims.

Friday closes the week with a raft of economic releases: Japan’s Bank Lending, Current Account, Eco Watchers Survey and Trade Balance; European Council Meeting (second day); China’s CPI, PPI, Exports, Imports, and Trade Balance; Switzerland’s Unemployment Rate and Real Retail Sales; Germany Harmonised Index of Consumer Prices, Imports, Exports,  Current Account, Trade Balance; France’s Budget; Italy’s Industrial Output; UK 10-year bond auction; Greece CPI and Industrial Production; Canada’s Net Change in Employment, Participation Rate, Housing Starts, and International Merchandise Trade; US Wholesale Inventories and Trade Balance.

On Saturday, New Zealand will publish the REINZ House Price Index.

Optimism Reigns in WEF; Germany, UK, China Data Surprises

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.

Commodities

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.

Currencies

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.

China Data Surprises; UK Data Disappoints

There was a mixed bag of economic data releases this week, and most notable of which are data out of China and the UK.

Weak data came out from different corners of the globe, namely Italy and Euro-area Industrial Production, UK Core CPI, PPI and Retail Sales data, US Empire State and Philly Fed Manufacturing Index, Australia’s Employment Change, and New Zealand CPI. UK Retail Sales for December surprised with a fall of 0.1 percent despite the holiday shopping season, and this puts the economy on the path of contraction.

On the bright side, there were also a handful of economic releases that provided economic optimism for other economies. Economic forecasts were outpaced by actual readings of Euro-area Trade Balance, US Retail Sales, US Unemployment Claims, US Housing Starts, and US TIC Long Term Purchases, Canada’s Manufacturing Sales, Japan’s Core Machinery Orders, Italy’s Trade Balance, and China GDP. The US Treasury reported $52.3 billion in TIC Long Term Purchases, besting its forecast of just $19.8 billion. China showed resilience amid global economic weakness as GDP rose 7.9 percent in the fourth quarter of last year, ending the streak of eight consecutive quarterly declines.

Commodities

Things have continued to look up for gold this week, especially after the nasty spike low during the first week of January. Price made a new monthly high on Thursday and it closed the week at $1,684. Topside, buyers need to contend with the $1,700 level ahead of much more wood to chop in the $1,730-50 area. $1,650-60 could pose as solid support near-term.

Oil headed for its longest winning streak since November 2011 as US House Republicans are set to vote next week on a three-month extension of the US debt ceiling. The US Treasury has expressed concern that the nation will exceed its $16.4 trillion debt ceiling 1 or two months from now. Oil also benefitted from the good GDP numbers out of China. Oil has reached its highest price in nearly four months and is set to approach the $97-$98 area if no resistance will come in the way of the bulls real soon. $94/$95 is expected to hold near-term.

Natural gas climbed to its six-week high due to a forecast of cold weather for the US Midwest to the Northeast over the coming 10 days. Soybean prices fell on optimism for Brazilian crop yields thanks to recently experienced rainfall. Meanwhile, corn rose as investors forecast its smallest stockpiles since 1974.

Currencies

EURUSD posted a quiet week, with just 148-pip range, compared to the prior two weeks. Attention was on the 1.3400 resistance which prevented the buyers from pushing through with their lofty attempts at the 1.3500 and 1.3600 levels. On the downside, buyers were keen to defend 1.3255/1.3300, which effectively put a lid on price this week. Buyers need to keep this lid, otherwise 1.3000 would remain vulnerable in the coming weeks.

USDJPY traders made a bold attempt at the coveted 90.00 level this week – and they have triumphed, even closing the week above this level for the first time in more than two years. Now the question is whether they would be able to hold on to this level in the coming weeks. The BOJ reports and announcements this coming week would most likely set the pace for USDJPY in the next 1-2 months.

As expected, GBPUSD continued to weaken and blasted through the important 1.6000 level with relatively not much fuss. The week closed at 1.5862, just ahead of 1.5825 which is the 4-month low and does not seem farfetched now. The real test for both sides will come at the 1.5700-50 area. A break of this area would help depress price further to the lower 1.5300s.

The Week Ahead

Just ahead, the market will face one of the busiest weeks of January.

Monday won’t have any key economic releases during the Asian session. Germany’s PPI, Eurogroup meetings, and Canada’s Wholesale Sales data will be released. German Bundesbank President Jens Weidmann will present a speech in Frankfurt later today. The US banks will be closed due to Martin Luther King Day.

On Tuesday, the market will closely watch BOJ’s Monetary Policy Statement, press conference, and Overnight Call rate announcement; UK’s Public Sector Net Borrowing and CBI Industrial Order Expectations; Germany’s ZEW Economic Sentiment; Canada’s Retail Sales; US Existing Home Sales and Richmond Manufacturing Index. ECOFIN meetings will also be held, while ECB President Draghi is also set to make a speech today.

On Wednesday, there are Australia’s CPI; Bank of Japan’s Monthly Report; UK’s Claimant Count Change, MPC Meeting Minutes, Unemployment Rate; Switzerland’s ZEW Economic Expectations; Bank of Canada’s Monetary Policy Report, rate announcement, statement, and press conference; US crude oil inventories. Today is also day 1 of the 4-day World Economic Forum annual meetings.

On Thursday, Japan’s Trade Balance, China’s HSBC Flash Manufacturing PMI; Euro-area, France, and Germany Flash Manufacturing PMI and Services PMI; Spain’s Unemployment Rate; Eurozone Current Account; UK CBI Realized Sales and BBA Mortgage Approvals; Belgium NBB Business Climate, US Unemployment Claims, Flash Manufacturing PMI.

For Friday, there is Japan’s Tokyo Core CPI, BOJ’s Monetary Policy Meeting Minutes;

Germany’s Ifo Business Climate; UK’s Preliminary GDP; Canada’s CPI; and US New Home Sales.

Saturday is the expected final day of the World Economic Forum annual meetings.

ECB and BOE Maintain Rates; China and Canada Data Surprise

The market is fully back and economic releases dotted the entire week, with attention centering on Thursday when central banks made interest rate announcements.

UK’s Bank of England maintained the Asset Purchase Facility at 375 billion Pounds for another month, saying there was a moderate success in their credit program. BOE also retained the official bank rate at 0.50 percent. Likewise, ECB retained interest rate for Eurozone banks at 0.75 percent.

During the ECB press conference on Thursday, ECB President Mario Draghi expressed optimism that 2013 would be a year of recuperation for the Eurozone economy, and sees the bond markets of the Euro-area stabilizing.

Statistics Canada reported a surprising 17.9 percent decline in Building Permits for November, the lowest level in nearly one year. According to the report, the decline was attributed to Ontario’s weak construction intentions for both the residential and non-residential sectors. The decline was surprising given that there was a 15.9 percent increase in the prior month.

The US and Canada reported much weaker trade balances, minus 48.7 billion and minus 2 billion, respectively. Meanwhile, China posted a much bigger trade surplus, 31.6 billion compared to a modest 20.1 billion forecast.

Commodities

Gold spent the first three days of the week consolidating below the $1,660s, which is at the top half of last Friday’s much larger range. The trip above this level on Thursday turned out to be unsupported, and price slid back to close the week at $1,662. Bulls need to make a concerted move above the $1,700 level in order to push price higher to the $1,750s.

Oil spent most of its time at the $93.00s, bobbing up and down all week, but in the end not much changed. The week closed just below the New Year gap high at $93.82. This area would continue to be sticky unless either side will be able to push price above $94 or below $91.51

Currencies

EURUSD traded relatively quietly for the first half of the week, and then rocketed 230-pips higher on Thursday. This was succeeded by a 115-pip rise after a brief consolidation on early Friday. With bulls succeeding in pushing price and closing above 1.3300, price is now ready to revisit the mid-1.3400s/1.3500. Buyers should watch the 1.3300 level and look for opportunities to buy.

USDJPY proved relentless and continued to push higher this week, with the dip below the 87.00 only serving another opportunity for late buyers. Price is now just 55 pips away from the 90.00 level, and this area would definitely be on the spotlight this week. Watch for the reaction of bears at this area.

Unlike EURUSD, GBPUSD was indecisive this week, staying in the 1.6000/1.6100 area the whole week. Price action is suggesting that the potential for a revisit of sub-1.6000s remain.

On the other hand, AUDUSD has showed some life as price made a milestone move this week – breaching the 1.0580s and nearing the 1.0600 level for the first time in 80 trading days. The climb was brief, however; price slid back down to the lower 1.0500s and closed the week at 1.0532. Buyers now have the upper hand and they must seize the opportunity to force price above 1.0600. Before that happens, they should conquer any attacks on the 1.0500 level.

The Week Ahead

Another busy week is ahead for traders, with the bulk of economic releases imparted on Tuesday, Wednesday, and Thursday.

Monday will be the release day of Australia’s ANZ Job Advertisements, Italian and Euro-area Industrial Production, and Canada’s Business Outlook Survey. There will be a bank holiday in Japan due to ‘Coming of Age Day’. Fed Chairman Bernanke is due to speak later today at University of Michigan.

On Tuesday, the market will get busier with New Zealand’s NZIER Business Confidence, Real Estate Institute of New Zealand’s House Price Index, UK’s RICS House Price Balance, Germany’s Final CPI, UK CPI and PPI, BOE Inflation Letter, US Retail Sales, US PPI, and US Empire State Manufacturing Index.

On Wednesday, Australia’s Westpac Consumer Sentiment, Japan’s Core Machinery Orders, Switzerland’s Retail Sales, Italian Trade Balance, Euro-area CPI, and US CPI, Beige Book, Industrial Production, and TIC Long-Term Purchases.

On Thursday, Australia will have its employment data in the form of Unemployment Rate and Employment Change. The market will also wait for the ECB Monthly Bulletin, France and Spain’s 10-year bond auction, and the US Unemployment Claims, Building Permits and Housing Starts.

For Friday, China will release GDP and Industrial Production data. The National Bureau of Statistics will also hold a press conference. Other releases include New Zealand CPI, UK Retail Sales and Canada’s Manufacturing Sales.

A Short Week with Optimistic Developments: US NFP and Fiscal Cliff

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.

Commodities

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.

Currencies

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.

US Fiscal Cliff Deal Reached at the 11th Hour

US lawmakers averted the dreaded fiscal cliff just in the nick of time, preventing $600 billion in simultaneous spending cuts and tax hikes on all income levels which were set to start this January.

The US Congress and President Obama have enacted laws in the last three years which had a common deadline of January 2013. All these laws and its effects comprised the so-called fiscal cliff.

Deficit-reduction meetings between Democrats and Republicans have been ongoing for more than two years, but cross-party discussions only started after the November 6 US elections nailed Obama, the Republican-ruled House, and the Democrat-controlled Senate to their seats for two more years.

Both sides jostled for compromise until the remaining weeks of 2012. House of Representatives Speaker and Republican John Boehner met extensively with President Obama along with other officials, and at times came close to an agreement.

At one time, Boehner offered an alternative proposal, “Plan B,” which will grant higher tax rates to those who earn an annual income that exceeds $1 million. He failed to raise support for this plan from his caucus.

Eventually, a compromise between the Obama and Boehner was never reached, and it went up to the Senate and Vice President Joe Biden to strike a deal. Senate Majority Leader Harry Reid and Kentucky Republican leader Mitch McConnell reached out to each other for a compromise over spending cuts, income tax rates, and estate taxes. In the end, Senate Minority Leader McConnell and Biden forged a last-minute deal on New Year’s Eve, which the Senate and House of Representatives approved on January 1.

The significance of this deal cannot be stressed enough; the economic effects are wide-ranging. With the agreement, most notably, the probability of another US recession this year was dashed; short-term fiscal stimulus is retained while increasing revenue over the long run; low-income families and college students will continue to enjoy their refundable tax credits; a tax hike by more than $3,400 for each household was prevented; unemployment insurance for nearly 2 million unemployed Americans, whose unemployment benefits have expired, is extended; tax cuts for married couples, who earns less than $450,000, is permanently extended; at least one-year federal production tax credit extension for wind power is granted; and inequality will be leveled somewhat as the top 1 percent of income earners will shoulder the most burden of higher taxes.

With the fiscal cliff of automatic spending cuts postponed and sweeping tax hikes extensively avoided, the US economy is in better shape to start the new year. However, US lawmakers will have to deal with the budget ceiling soon, and Congress is expected to discuss raising the debt ceiling by February.

The US Fiscal Cliff Continues to Cause Concern in the Markets

Japan’s Liberal Democratic Party emerged as a landslide winner in last Sunday’s elections in Japan, with Shinzo Abe voted as the incoming Prime Minister, a position he held shortly a few years ago. LDP won around 294 seats out of the 480-seat parliament lower house. Abe is expected to implement “aggressive monetary easing,” a plan that he would likely push in the near future. Abe is also planning to augment the public-works spending in the nation.

US fiscal cliff talks continue between the US leaders. Markets are apprehensive that the American lawmakers would fail to reach a consensus as the years draws to a close. A year-end fiscal budget expiry, without the lawmakers’ intervention, would initiate $600 billion-worth of tax hikes and spending cuts which would affect most Americans.

Commodities

Gold started off Monday in a very tight trading session, but eventually the week precipitated into a decline of $42 and $36 on Tuesday and Thursday, respectively. The sharp drop blasted November’s lows and price headed towards the lower $1,600s. Further weakness could hurl price further down to the multi-year triple bottom in the $1,520s. Bulls must defend this level at all cost.

Oil made a stronger performance in the first four days of the week, clinching the coveted $90.00 level in the process. Price reached new highs, around $90.51, but the move received no follow-through from other buyers, prompting price to recede lower by more than $2 on Friday. Oil is still mired in a multi-month consolidation but buyers seem to be getting more aggressive. $93.50 is the next key target once $91.00 yields to the bulls.

Currencies

EURUSD started off Monday in quiet mode, before powering 160 pips higher mid-week and busting through 1.3300 and topping out at 1.3307. With the holidays in the horizon, bulls were unable to cement their control of this level, capping price on Wednesday and Thursday. Weakness and thinner liquidity led to further decline on Friday, with the pair closing the week just 18 pips higher from the weekly open. The pair is bullish but buyers would aim for a yearly close above the April’s high around 1.3270 to give the bulls a further boost during 2013’s start.

The inability of USDJPY to fill the gap created during the start of the week is a nervous premonition for bears. The LDP landslide win in last Sunday’s elections also added insult to injury. The week’s close was slightly lower than the open, but despite this the pair is undeniably in bullish territory with the weekly close boasting of being the highest since May 2011. The bulls are poised to break the long-term and wide range if they could rise above April 2011’s 85.52 high. This is the near-term target in the coming weeks.

GBPUSD was also bullish in the first three days of this week, printing a double top and stopping just 3 pips shy of touching September’s 1.6308 high. Bears took advantage of this weakness and drove price lower in one fell swoop on Friday, diving 130 pips with majority of the drop done in just 7 hours. With Friday’s trading, the week ended virtually unchanged. Price could drift much lower from here, but it is still in the court of the bulls unless the 1.6000/1.6200 yields.

The Week Ahead

The market is pretty much on holiday for the first three days of the coming week, hence traders could expect a light economic week ahead and into the new year.

On Wednesday, Bank of Japan would be out with its Monetary Policy Meeting Minutes. The United States will release Standard & Poor’s Case-Shiller House Price Index, which is expected to tick higher for the fifth straight month. The Fed’s Richmond Manufacturing Index is estimated to come in at 12, better than November’s reading.

There would be a bit more news on Thursday but the most notable ones comes from the US in the form of the Conference Board’s Consumer Confidence, Unemployment Claims, and New Home Sales.

For Friday, Japan will have a little spate of news releases such as Manufacturing PMI, Household Spending, CPI, Retail Sales, Unemployment Rate, and the preliminary reading of Industrial Production. Italy will announce the result of its 10-year bond auction. Meanwhile, the US will release US Pending Home Sales, Chicago PMI, Natural Gas Storage, and Crude Oil Inventories.