Major Currencies Holding Narrow Range Ahead of U.S. Retail Sales, U. of Michigan Confidence Survey

Talking Points
•    Japanese Yen: Consumer Confidence Unexpectedly Weakened in November
•    Pound: U.K. Producer Prices Rise Less Than Expected
•    Euro: ECB President Trichet Says Economy Has “Turned Around”
•    US Dollar: Retail Sales, U. of Michigan Confidence on Tap

Major Currencies Holding Narrow Range Ahead of U.S. Retail Sales, U. of Michigan Confidence Survey

The Euro tipped higher against the greenback for the third day to reach a high of 1.4776 however, the lack of momentum to retrace the sell-off from the previous week is likely to keep the EUR/USD within a tight range going into the North American trade as investors weigh the outlook for future growth. Nevertheless, as risk trends continue to dictate price action in the foreign exchange market, the rise is risk appetite should keep the euro-dollar bid heading into the end of the week as equity futures foreshadow a higher open for the U.S. market.

European Central Bank President Jean-Claude Trichet said that the “freefall of the economy has been halted and turned around” during a speech in London, and went onto say that the “financial crisis has not precipitated the extreme spiral of falling prices, rising debt burdens and chain bankruptcies that some economists had feared.” At the same time, Governing Council member Yves Mersch held a wary outlook for the region and said that policy makers “must remain cautious” as confidence in the private-sector remains vulnerable to future shocks, and stated that he remains “skeptical” of the new restrictions that are being place on banks as the financial system remains weak. As the ECB remains on alert and expects to see a moderate recovery over the following year, the central bank is likely to hold a dovish outlook for future policy as the board anticipates price pressures to remain subdued “over the policy-relevant horizon.” 

The British Pound pushed higher for the second-day, but held within the previous day’s range as the overnight rally stalled at a high of 1.6340, and the GBP/USD may hold steady ahead of the North American session as investors wait for the slew of U.S. data scheduled for later today. The economic docket for the U.K. showed producer prices increased 0.2% in November after rising a revised 0.4% in the previous month, with input prices advancing 0.1%, while the core rate unexpectedly slipped 0.1% after growing 0.5% in October. Moreover, the annual rate jumped 2.9% from the previous year, which was widely in-line with expectations, while the core rate fell at an annualized pace of 2.0% from 2.2% in the month prior. The data was slightly mixed given the upward revision in the previous month’s reading however, as policy makers anticipate price pressures to intensify over the near-term, the Bank of England may hold a hawkish outlook for future policy as the members of the board see the economy emerging from the worst recession since the post-war period.

U.S. dollar price action was mixed overnight, with the USD/JPY advancing for the second day to reach a high of 89.00, and the reserve currency is likely to face increased volatility going into the North American session as the economic docket is expected to reinforce an improved outlook for the world’s largest economy. Retail spending is forecasted to increase 0.6% in November after expanding 1.4% in the previous month, while the U. of Michigan consumer confidence survey is forecasted to rise to 68.8 in December from 67.4 as the nation emerges from the worst recession since the Great Depression. In addition, import prices are expected to grow at an annual pace of 2.9% in November, which would be the first positive reading since October 2008, while business inventories are anticipated to slump another 0.2% in October after falling 0.4% in the previous month, and the data is likely to reinforce an improved outlook for future growth as the expansion in monetary and fiscal policy continues to feed through the real economy.


Will the EUR/USD Maintain the Broad Range Going Into Next Year? Join us in the Forum

Related Articles:

Forex Technical and Fundamental Forecasts for December

To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com