Euro extended recent down trend last week and was the weakest major currency. December inflation turned negative for the first time since October 2009. Speculations continued to build up for ECB to start quantitative easing later this month. Such speculation was also solidified by report that ECB is considering three options for sovereign bond purchase. Sterling closely followed Euro after a string of weaker than expected PMI data. While the greenback extended recent rally against European majors, minor weakest was seen against commodity currencies on latter's recovery. Also, while the non-farm payroll report for December was solid, markets were let down by negative wage growth in that month. Yen extended recent rebound on mild risk aversion and falling treasury yields, but was overwhelmed by the recovery in Kiwi.
Dollar bulls were also disappointed by the FOMC minutes, which indicates Fed is in no hurry raise interest rates any time soon. More in Fed Unlikely To Hike Rate Before April, December Minutes Signaled. The technical picture in most dollar pairs suggested temporary topping in the greenback. That is, we'd likely see some consolidation in EUR/USD above 1.1750, GBP/USD above 1.5033 and USD/CHF below 1.0216. Nonetheless, the retreat in dollar in these pairs should be shallow and the overall outlook stays bullish.
The biggest moves could be find in AUD/USD and USD/JPY. In particular, AUD/USD got strong support from key support zone around 0.8 handle. A break of 0.8214 resistance this week would indicate near term reverse that would bring a stronger rebound to 0.8323 fibonacci level and above. Meanwhile, USD/JPY would also likely head downwards to 115.55 support in near term, following other yen crosses.
Looking ahead, the economic isn't too busy this week. Euro traders could start to lighten up positions ahead of next week's key event of ECB and Greek election. There are some important data from US including retail sales, PPI and CPI as well as Fed's Beige Book. But these data might not trigger much reactions in the markets. The more important events are for Sterling and Aussie. Weak CPI reading from UK will further affirm the expectation that BoE won't raise rate in 2015 and that would drag sterling down, in particular against dollar and yen. Meanwhile, Aussie will face the test of China trade and Australia employment. Here are some highlights:
- Monday: Australia home loans
- Tuesday: China trade balance; UK CPI and PPI
- Wednesday: Eurozone industrial production; US retail sales; Fed's Beige Book
- Thursday: Australia employment; US PPI, jobless claims, Empire State and Philly Fed manufacturing
- Friday: Swiss retail sales; Eurozone CPI final; US CPI, industrial production, U of Michigan sentiment