The U.S. dollar seems to be emerging as a safe-haven currency once more as traders are seeking a more stable currency while the G20 Summit is going on. On top of that, profit-taking prior to the big event is also helping prop up the U.S. dollar against most of its counterparts. The University of Michigan consumer sentiment figure is set for release during today's New York session and an improvement in confidence is expected. The figure could climb from 71.3 to 74.8 for the current month but this is just a preliminary reading, which is still subject to revisions later on. A stronger than expected figure could hint at higher consumer spending in the coming months, which could provide support for the Greenback.
Yen bears are easing off their short positions as the G20 Summit could put Japan and its loose monetary policy on the hot seat for the next few days. Although most yen pairs are still trading carefully or consolidating for now, harsh comments on the BOJ's alleged exchange rate targeting moves could erase the yen's recent losses and set off some rallies prior to the end of the week. Although some countries are expected to show support for a weaker yen, be careful of possible weekend gaps moving forward.
The euro suffered three major blows yesterday, starting from the weaker than expected euro zone GDP release which pushed the region deeper into a technical recession. The top three economies (Germany, France, and Italy) all posted a contraction for the last quarter of 2012, resulting in an overall 0.6% GDP decline for the region. An ECB official was quoted saying that negative interest rates might be an option for the central bank if growth doesn't pick up pace this year while an S&P member announced that Spain, Italy, Portugal, and France might suffer credit rating downgrades sooner or later.
The pound has been one of the weakest performing currencies for the week as fundamentals have been weak in the United Kingdom. Earlier this week, inflation reports came in slightly stronger than expected but the BOE stayed committed to further monetary policy easing if growth remains stagnant. This puts the country at risk of stagflation, a period of strong inflation accompanied by weak economic growth, which could further undermine the country's economic performance.
Stronger than expected quarterly retail sales data pushed the Kiwi to a new 5-year high against the U.S. dollar as consumer spending posted a 2.1% jump for the last quarter of 2012. The core version of the report showed a 1.5% increase, better than the consensus of a 1.4% uptick. This goes to show that the retail sector still remains strong despite the downturn in New Zealand's employment data for the same period. NZD/USD staged a strong upside breakout above the .8450 resistance which held for the past few months and even rallied beyond the .8500 handle. Sentiment for this pair has shifted to a more bullish one especially since the New Zealand isn't looking to intervene in the currency market and the RBNZ has expressed its upbeat outlook for the economy moving forward.
Only minor economic reports were released from Australia this week but these were enough to keep the Australian dollar afloat against the U.S. dollar. Stronger than expected data from New Zealand, its closest economic neighbor, also boosted sentiment for Australia. AUD/USD broke above the top of the falling channel on the 4-hour chart suggesting that the downtrend could be over and that a rally could be in the cards. Be mindful of a potential weekend gap as the G20 Summit could contain some wildcards for major currency pairs.
Only the wholesale sales report is due from Canada today and, since this is December data, it's not expected to have a huge impact on the Canadian dollar's price action. The rally in oil prices has been lifting the Canadian dollar so far but traders might want to take profits off ahead of the weekend.
There are no reports due from Switzerland for the rest of the week but the Swiss franc could be due for a rally, especially against the euro, if the G20 leaders criticize the SNB's EUR/CHF peg. The G20 Summit is expected to focus on exchange rate intervention and possibly emphasize that this shouldn't be the mandate of central banks. If that's the case, the Swiss franc could have a chance at rallying against the euro as the Swissy appears to be the more stable European currency compared to the euro and pound.
by Kate Curtis from Trader's Way