Such is life, and that seems to be the prevailing attitude around Europe these days. Rumors are being floated about that perhaps France is in danger of having its credit rating lower if the Euro zone debt problems aren’t solved quickly. This would be a major blow to the EU, as France is widely considered the region’s second strongest economy.
But it’s a shortened week due to the Christmas holiday so traders may not be in a punishing mood and it’s unlikely at this juncture that these rumors have legs. Lower than expected German PPI figures have contributed to Euro weakness this morning.
The Loonie is lower across the board, as worse than expected wholesale sales figures have reduced demand despite oil prices ticking slightly higher.
The Kiwi is noticeably higher this morning, as mild risk taking and a better than expected Performance of Services Index have reminded the markets that NZ is likely to be next to raise interest rates.
Both the central banks of Australia and the UK are set to release the minutes of their rate policy meetings this week, so we will get a better idea of the economic prospects of each country and the monetary policy response to them.
In the forex market:
Aussie (AUD): The Aussie is mostly higher ahead of tomorrow’s release of the RBA’s rate policy meeting minutes which will show where the bank stands as far as the inflation vs. growth proposition.
Kiwi (NZD): The Kiwi is higher across the board as the market realizes that if inflation picks up then New Zealand will be the most likely to raise interest rates next. This month’s reading of the Performance of Services Index was higher than last month. (Click chart to enlarge)
Loonie (CAD): The Loonie is lower across the board as wholesale sales figures missed estimates, coming in flat vs. an expectation of a .7% gain. This comes ahead of tomorrow’s CPI and retail sales data and Thursday’s GDP report.
Euro (EUR): The Euro is lower on the French downgrade rumors as well as lower than expected German PPI data which means that the ECB won’t have to do anything about rates any time soon. It’s all about the debt crisis in the EU right now. Harsh weather is not helping the European economy either.
Pound (GBP): The Pound is lower ahead of Wednesday’s release of the BOE rate policy meeting minutes which will be interesting to see if anyone on the committee has changed their stance. There was a report released from the CBI which predicted that the BOE would need to start raising rates in the middle of next year to combat inflation. London has also been hit with harsh weather, which is affecting commerce. (Click chart to enlarge)
Dollar (USD): The Dollar is mixed this morning, benefitting from Euro and Pound weakness but affected adversely due to Pac Rim strength. Wednesday is the release of US GDP figures, followed on Thursday by various economic data ahead of the shortened holiday weak.
Yen (JPY): The Yen is showing strength this morning as European weakness has increased money flows. Tomorrow is the BOJ rate policy decision but do not expect any material changes to policy. Trade balance figures on Wednesday could be important if they show that recent Yen strength is affecting exports.
As the markets wind down toward the Christmas holiday, end of the year data may show that we are lucky to be where we are in spite of all of the turmoil over the past year. The Euro debt crisis is still very much the major risk to global stability; and of course let’s not forget the effects of QE2 on the Dollar.
So this week is likely to be quiet with the potential for larger than expected moves in the market as volume is lighter.
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