19/12/05
Comment:
Please note: This will be the last update until next year and therefore we have included data releases out to the first week of the New Year. Previews of the data releases will be provided in the daily summary.
The Dollar was lower against the major currencies and especially the Japanese yen where it fell more than 5 full yen over the course of the week. The only exception was the Aussie where the dollar managed to make some modest gains last week. The Euro closed last week at 1.2012 having started the week at 1.1813. US$/JPY closed last week at 115.68 having started the week at 120.61. The GBP closed last week at 1.7714 having started the week at 1.7544. US$/JPY closed last week at 115.68 having started the week at 120.61. The A$ closed last week at 0.7457 having started the week at 0.7509.
last week’s recap
The Dollar recorded its largest one day drop against the Japanese yen since March 2002. The dollar suffered last week from market expectations that the Fed is close to the end of its tightening cycle and this is resulting in unwinding of long dollar positions. The Euro was stronger last week as it benefited firstly from dollar weakness, but also from stronger than expected data out of Eurozone. Both the IFO and the German ZEW economic sentiment were stronger than market expectation. The Japanese yen was the big performer last week against all major currencies and especially high yielding currencies due to massive profit-taking. The yen started its move higher early in the week and managed to hold onto its gains through to the end of the week. The move started with the third consecutive rise in the Japanese Tankan Survey. The Pound rallied impressively despite data releases which suggest a deteriorating inflation environment, which increase the chance of rate cuts down the track. The Aussie dollar fell last week, due to unwinding of carry trades combined with a fall in commodity prices.
The week ahead
Looking forward at the extended calendar going into the first week of the New Year, the major trends could be some encouraging inflation reports – especially in the Eurozone – and continued upbeat activity data.
In the States, the inflation highlight will be producer prices for November (Tuesday). In terms of the US consumer, personal income and spending (Thursday) are likely to show quite solid gains on both sides of the account. The provisional estimate of consumer sentiment for December was higher with the final release due on Friday. The Conference Board’s measure of consumer confidence is expected to have risen (Wednesday, December 28th). The outlook for consumer spending is linked to the state of the US housing market, so housing data will be watched closely in the coming weeks. New home sales (Thursday) are forecast to have dropped in November after the surge to a record level in October. Existing home sales (Thursday, December 29) are likely to have rebounded after October’s decline.Durable goods orders (Thursday) are expected to have been boosted in November by another rise in aircraft orders. Looking into 2006, the two key releases due out in the first week of 2006 will be the manufacturing ISM (Tuesday, January 3) and the employment report (Friday, January 6). The increasing erratic Chicago PMI (Friday, December 30) is also forecast to have dropped slightly. We will provide our previews of these data releases in the daily summary.
In the Eurozone, inflation performance in December is expected to have been good. The first guide will come from the German regional reports (Thursday). The HICP flash estimate for December will be released on Wednesday, January 4. In France, the INSEE survey has been more positive, and the market expects that to continue in the December update. The Belgian leading indicator (Thursday) is also forecast to have moved up in December. German manufacturing orders (Thursday, January 5) are forecast to decline but only in response to a large jump in the previous month. The Purchasing Manufacturing Index for Eurozone & France is forecast to continue improvement on Thursday, January 3. In the UK, the holiday season calendar is a lighter one. The Minutes of the MPC meeting of December 7-8 will be eagerly awaited, and will be released on Wednesday. Housing market data (Wednesday, January 4) are expected to show a small decline in mortgage approvals. The performance of the industrial sector of the UK economy has been ordinary, and this looks set to continue. The key indicator will be the manufacturing PMI (Tuesday, January 2). We will provide our previews and reviews of these data releases in the daily summary.
In Japan, the monetary policy debate has become a political one, with any thought of policy tightening hitting opposition from politicians. The data over the next few weeks could continue to fuel the debate. So the market will focus on Industrial production (Thursday, December 29) which has been improving. The other indicator will be PMI survey (Monday, January 2). We will provide our previews and reviews of these data releases in the daily summary.
