Dollar shines after an underwhelming summit

Timothy shuffling over to Europe and declaring that he had “a lot” of confidence in efforts by France and Germany to ramp up Euro-zone fiscal governance with proposed EU treaty changes seem to have done the trick. On the face of it, the Euro summit squeezed through an underwhelming “new” agreement alongside the EU treaty with a tougher deficit and debt regime to insulate the region against the debt crisis. China on the other hand could only come up with a +$300b investment vehicle. Will Geithner’s “strong arming” Europe pays off? The acid-test will be if such an agreement could ignite sustained recovery in appetite for Spanish and periphery bonds. Of course, the US has the Euros back; it’s in everyone’s interest that the Euro survives.

Below are some other highlights of the week:


AMERICAS

  • USD:ISM non-manufacturing index fell to 52 in November from 52.9 a month earlier. Fifty is the dividing line between expansion and contraction.
  • CAD: Canadian Building Permits surged +11.9%, supported by public sector offices and factories. Residential fell for the third consecutive month.
  • CAD: No surprise from the BoC keeping rates on hold at +1%. The market had been expecting stronger ‘dovish’ remarks; however, they were not forthcoming. This managed to give the loonie a temporary lift. Governor Carney continues to suggest the uncertain outlook for growth. Subdued price pressures imply no need in a change in the Bank’s neutral monetary stance. Policy makers again highlighted in the report the damaging impact of the loonie.
  • CAD: Ivey PMI was at 59.9 vs. 54.4 seasonally adjusted in November. The employment index was at 49.4, indicating employment was lower than in the previous month.
  • CAD: Housing starts were down -13.3% to an annual rate of +181.1k in November, mostly due to a big drop in the multiples. This is the weakest reading for housing in 9-months.
  • USD: US weekly claims fell -23k to +381k, a new nine-month low. Continuing claims also fell, easing-174k to +3.583m
  • CAD: Canada recorded a surprise Trade balance deficit (-$885m vs. +vs. +$1b) in October, following a big month surprise surplus. The drop came mostly on the back of a -3% fall in exports (biggest decline in eight-months) and a +1.9% advance in imports.
  • CAD: Labor productivity rebounded in Q3 (+0.4% vs. -1%) and labor costs declined by the biggest amount in a decade (-0.5%). This was the first drop in five-straight quarterly increases.
  • USD: Preliminary December Michigan CSI reading of 67.7 beat market expectations of 65.5. The improvement was due mostly to expectations.

 

EUROPE Week in FX
ASIA Week in FX

 

WEEK AHEAD

  • We start the week with CNY and AUD Trade Balances
  • Inflation reports and hearings come to us from GBP and US
  • FOMC rate decision on Tuesday and SNB on Thursday
  • Germany gives us her ZEW Economic sentiment
  • Claimant changes are presented in the UK and US
  • The USD and GBP deliver us Retail sales
  • Philly Fed Manufacturing ends the week for the US

 

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell