Euro, British Pound Quiet On Holiday Volume and Empty Calendar, Dubai World Meets With Lenders

Talking Points
•    Japanese Yen: BoJ Says Production To Moderate
•    Pound: Finding Mild Support with Expected Improvement in GDP Ahead
•    Euro: Quiet As Markets Await Outcome From Dubai World Meetings
•    US Dollar: Holding onto Recent Gains Despite Holiday Volume

Euro, British Pound Quiet On Holiday Volume and Empty Calendar, Dubai World Meets With Lenders

The Euro has remained relatively unchanged as Holiday volume setting in and an empty economic calendar has failed to inspire markets. Weakness at the onset of European trading was quickly reversed as traders show no conviction. A developing news story is Dubai world meeting with its lenders in an effort to negotiate a standstill on their debt payments. However, the complexity of the debt structure is making it difficult for the state owned holding company to generate the desired results. If the potential for default re-emerges then we could see a sharp decline in risk appetite today which may weigh on the EUR/USD today.

The British pound has also seen a quiet start to the week with an empty calendar, but with the most event risk ahead it has the greatest potential for volatility. Tomorrow’s final reading for 3Q GDP is forecasted to show an upward revision to -0.1% from -0.3% as the U.K. economy validating expectations that that the economy will return to growth in the fourth quarter. The prospect of future growth could generate support for the sterling especially if we see an increasing hawkish tone from the BoE minutes due for release on Wednesday. The central bank paused their asset purchase program at their December meeting, and if the language points toward an end to quantitative easing then we could see a rise in the interest rate outlook adding to the bullish case. However, if any MPC members voted for additional measures then the current bearish trend may continue.

Yen traders will be the most active this week with Asian markets having a full schedule and a number of Japanese fundamental indicators due for release. Today we saw the BoJ released their monthly report in which they still point toward a continued recovery but showed a slightly more cautious outlook for exports and production. "The uptrend in exports and production is expected to continue, reflecting continued improvement in overseas economic conditions, although the pace of increase is likely to moderate gradually," the BOJ said in notes released from the bank's policy meeting. This will continue to put pressure on the Asian currency which has traded lower since the central bank announced its 10 trillion Yen lending program.

The dollar has traded sideways against most of the major currencies and with an empty economic calendar we could see the subdued price action continue. However, a week of light volume could make broader price action susceptible to sharp swings in price action. The lack of [participation will make it formidable for any new trends to develop which may see the continuation of building greenback support. Final 3Q GDP numbers and November’s consumption figures will present the most likely event risk on the week with Durable Goods on Christmas Eve offering potential brief volatility. The main news release during the U.S. session will be the Canadian retail sales report which is expected to show demand rose for a third consecutive month by 0.8%. The “loonie” has started to find support ahead of the anticipated positive results as OPEC has sent a signal that they will keep production on hold at tomorrow’s meeting. .


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To discuss this report contact John Rivera, Currency Analyst: jrivera@fxcm.com