Forex Major Currencies Outlook (Dec 16, 2014)

Data from the US came in mixed, with stronger than expected capacity utilization and industrial production figures and weaker than expected Empire State manufacturing index and TIC long-term purchases data. For today, building permits and housing starts are due but both aren’t expected to lead to strong dollar movements ahead of tomorrow’s FOMC statement and CPI releases.

EUR

The euro managed to hold steady to the dollar in recent trading, even with the lack of top-tier data from the region. Today could be a more eventful session, as the German and French manufacturing and services PMI readings are due. Both countries are expected to post improvements in these sectors, which might be enough to lift the region’s PMI readings as well. Also due today is the German ZEW economic sentiment index, which could improve from 11.5 to 19.8, reflecting a pickup in optimism.

GBP

The pound lost ground to most of its counterparts, despite an improvement in the CBI industrial order expectations report. The reading climbed from 3 to 5 instead of holding steady at 3. There are plenty of reports lined up from the UK today so there could be more volatility among pound pairs. These include the UK bank stress test results, BOE financial stability report, and UK CPI, among which the inflation report might generate the most interest. Weakening price pressures would remind traders that it would take some time before the BOE tightens.

CHF

The franc was able to stay afloat in recent trading, even as the PPI reported weak producer inflation. The release showed a 0.7% decline instead of the projected 0.2% uptick, suggesting that deflation might take hold in the country. There are no major reports lined up from Switzerland today, as the franc might take its cue from euro movements.

JPY

The yen regained ground to most of its counterparts as risk aversion was very much present in recent trading. The victory of Prime Minister Abe was taken negatively by Japanese equities, forcing the Nikkei to chalk up more than 1% in losses. After all, this suggests that aggressive reforms and another potential tax hike might take place, which would put further pressure on Japanese companies. There are no major reports due from Japan today.

Commodity Currencies (AUD, NZD, CAD)

The comdolls weakened to the dollar as risk aversion weighed on the higher-yielding currencies after the hostage-taking in Sydney and the drop in oil prices. Australia’s mid-year economic and fiscal outlook showed mixed forecasts, with weaker inflation and employment prospects eyed. Earlier today, China’s HSBC flash manufacturing PMI showed a drop from 50.0 to 49.5, indicating a return to contraction. Canadian manufacturing sales is up for release later and the New Zealand dairy auction is also set to take place.

By Kate Curtis from Trader's Way