Daily Market Analysis: Currency Report

According to a report released by the National Association of Home Builders on Monday, homebuilder confidence in the U.S. improved for the third consecutive months in December. The NAHB/Wells Fargo Housing Market Index rose to 21 in December from a revised 19 in November. Bank of America Corp, Chief Executive Officer Brian T. Moynihan, said U.S. economic growth will be slow next year and that companies aren’t using stockpiles of cash to build their businesses. He added that the U.S. economy may expand about 2.1 percent next year and Consumer spending was “modestly encouraging” at about 5 percent higher this month than the year-earlier period, while Employment won’t improve “a lot” in 2012, according to a report published by Bloomberg today.

The Finance Minister of the world’s second-largest economy, Jun Azumi said that Japan is discussing with China possible purchases of Chinese government bonds. Moreover, the Ministry of Economy, Trade and Industry showed Tuesday, that the all industry activity index rose 0.8 percent month-on-month after easing 0.7 percent a month ago. Japanese all industry activity expanded in October after falling for two straight months.

European ministers agreed on Monday after a conference call to support a substantial increase in the International Monetary Fund resources. Ministers confirmed that, as part of a broader international effort to improve the adequacy of IMF resources, euro area Member States will provide EUR 150 billion of additional resources through bilateral loans to the Fund's General Resources Account. The share of the contributions will be based on the quota shares resulting from the 2010 quota reform. According to the quota and to indicative numbers released in the statement, Germany will contribute with €41.5B, France with €31.4B and Italy with €23.48B. Czech Republic, Denmark, Poland, and Sweden indicated their willingness to take part in the process, while the UK will define later its contribution in the framework of the G20.

EUR/USD:

The pair had some good support in the first half of the yesterday’s session as investors’ sentiments were boosted ahead of the European ministers’ conference call to increase the IMF resources to tackle the Euro crisis. The pair peaked at 1.3041 intra trade but in the second half the EUR/USD gave up the gains to trade below the 1.3000 psychological level as investors were slightly disappointed on the outcome of the conference call. In addition the news of the death of North Korea’s leader Kim Jong-il had increased demand for dollar as a haven. Today, the pair is having some support in Asia and is trading above the 1.3000 level. The resistance level is at 1.3041 yesterday’s peak and the support level is at 1.2982. The market sentiments on Euro remains weak and we might see further decreases in the pair as Germany will release the Gfk Consumer Confidence Survey for January at 07:00 GMT which is expected to slow slightly to 5.5 from 5.6. Prudence recommended.



USD/JPY:

The pair registered some high fluctuations on the first day of this week as the US dollar increased against other major currencies amid risk after the reported death of North Korean leader Kim Jong-il. Today, the pair is trading lower on the Asian Market as a slight correction and also because of speculation ahead of the last BOJ meeting in 2011 to find a consensus on interest rate, which is expected to be flat at 0.10%. The pair support level is at 77.81 and the resistance level is at 78.04. A higher than expected rate will generate a bullish for the JPY, while a rate lower than expect will increase demand for USD. High volatility is expected today so it’s better to wait for the interest rate decision to be published to have some visibility on the pair.




EUR/CAD:

Euro against the Canadian dollars declined by a little more than 76pips on Monday as Canadian wholesale sales rose 0.9% in Oct, their sixth straight gain. Today, the pair is trading slightly higher in the narrow range of 1.3498 – 1.3472. The resistance level is at 1.3506 and the support level is at 1.3466. The pair might continue its increasing trend as Canada CPI is expected to ease at 0.1 percent in November from 0.2 percent, while the core CPI is expected to rest at 0.1 percent from 0.3 percent registered in October. Investors should be cautious on the pair.

Gold:

The metal slipped on Monday, as the US dollar strengthened throughout the day to accordingly push down gold prices amid speculation over economic instability in Asia following the death of North Korean leader Kim Jong-il. Gold traded in the narrow range of $1608.46 -$1583.61 an ounce yesterday and today the commodity had the same trend. So far, the level of uncertainty is very high and investors are better to be cautious.




Dow Jones:

U.S. shares fell lower as worries that euro zone leaders were failing to make progress solving the debt crisis and Mario Draghi's bearish comments. The index dropped by nearly 195 points yesterday to trade to a low of 11,660.6 points. Today, the index is trading higher in the range of 11762.4-11726.9 points. Investors are awaiting housing starts and building permits data on Tuesday to have some visibility on the index.