The U.S. dollar could be in for a bit of consolidation against its major currency counterparts until the big reports are released during the New York session. The first set is the U.S. building permits and PPI reports, which are both expected to show improvements for January. Building permits are projected to climb from 0.91M to 0.92M for the month while producer prices are expecting a 0.3% rebound, which could help boost overall inflation later on. After these reports are released at 1:30 pm GMT, the Fed will print the minutes of its latest monetary policy meeting at 7:00 pm GMT. This could contain clues on what the policymakers plan to with the rest of their asset purchases and if they are considering shortening the timeline of these easing programs. If that's the case or if the FOMC members turn out to be a little more upbeat with their assessment, the U.S. dollar could rally on expectations of sooner than expected monetary policy tightening.
The yen's selloff seems to have lost steam lately as USD/JPY made several failed attempts to break past the 94.00 handle. The minutes of the latest BOJ monetary policy decision appear to be providing support for the Japanese yen as the policymakers were less dovish with their economic assessment lately. The minutes also explained the reasoning behind the new inflation targets and how the policymakers plan on driving deflation out of the country in the longer run. Japan just released weaker than expected trade balance data during the Asian session though but this doesn't seem to be dampening the yen's rallies as the deficit still narrowed from 0.78 trillion JPY to 0.68 trillion JPY.
USD/CHF is still somewhere around the middle of the falling channel on the 4-hour time frame, which means that the pair could go either way. Switzerland will be printing its ZEW economic expectations report for January at 10:00 am GMT today and could record another improvement for the month. Recall that the reading climbed from -15.5 to -6.9 for December as it has been steadily rising for the past five months. A stronger than expected report could trigger franc buying while a weaker than expected reading could push USD/CHF to the .9250 resistance.
Stronger than expected ZEW economic sentiment figures from both Germany and overall euro zone triggered an upside breakout for EUR/USD, which rallied until the 1.3400 mark. The German ZEW figure jumped from 31.5 to 48.2 while euro zone's reading climbed from 31.2 to 42.4, suggesting that an economic rebound could still be underway. This was enough to erase the negative vibes brought about by weaker than expected euro zone GDP, which pushed the region deeper in recession, as market watchers anticipate stronger growth moving forward. Only the German PPI release and the German 10-year bond auction are on tap for today and these reports aren't expected to have a huge impact on euro pairs, unless they turn out significantly better or worse than expected.
The pound is the weakest performing currency this week as it continues to get bogged down by downbeat monetary policy expectations and poor economic figures. The U.K. is set to print its claimant count change report for January, which could show that the number of claimants dropped again, this time by 5.1K. If that's the case, it could reflect a recovery in the jobs sector, which would hint at stronger consumer spending and growth down the line. Another major mover for the pound today is the BOE meeting minutes which would show what policymakers think the BOE should do next. Take note that the U.K. is facing the possibility of a triple-dip recession and central bankers are likely to express their concern. On top of that, BOE Governor King's recent speech revealed that the central bank is willing to implement further easing if needed despite the strong inflationary pressures.
Commodity Currencies (AUD, CAD, NZD): Neutral
It seems that the commodity currencies are managing to stay resilient against the U.S. dollar as their central banks still remain the more hawkish ones among the major economies. Earlier this week, the RBA monetary policy meeting minutes showed that central bankers were in no rush to cut rates. However, Australia suffered a round of weak economic data after the previous RBA monetary policy meeting, which suggests that they might change their mind later on. A few hours ago, RBNZ head Graeme Wheeler talked about a potential intervention in the currency market as the Kiwi has been too strong lately. Meanwhile, the Canadian dollar lost a bit of ground to the U.S. dollar as foreign securities purchases and manufacturing sales missed expectations.
by Kate Curtis of Trader's Way