Forex Major Currencies Outlook (Dec 17, 2014)

Risk aversion seems to be in play, yet traders are keen to reduce their dollar holdings ahead of today’s FOMC statement. Data from the US economy on Tuesday was mixed, as building permits and housing starts came in line with expectations while the flash manufacturing PMI fell short and indicated a slowdown in industry expansion. The Fed is still expected to drop the “considerable time” phrase in discussing how long interest rates would remain low, but failure to do so might lead to more dollar losses.

EUR

The euro was off to a good start but wound up erasing its day’s gains when German and French manufacturing and services PMI readings printed mixed results. France saw a downturn in manufacturing and an improvement in services while Germany had a better manufacturing PMI and a weaker services PMI. Overall, the euro zone manufacturing PMI improved from 50.1 to 50.8 while the services PMI climbed from 51.1 to 51.9. The German ZEW also marked an improvement from 11.5 to 34.9, reflecting a strong rebound in confidence. Today has the euro zone final headline and core CPI figures due.

GBP

Despite weaker than expected CPI data, the pound managed to score gains against the dollar and some of its FX trading counterparts. Headline CPI fell from 1.3% to 1.0% while core CPI declined from 1.5% to 1.2% in November, which might lead BOE Governor Carney to write a letter of explanation to the Chancellor. UK jobs data is due today and a 19.8K pickup in hiring is eyed, along with an improvement in the jobless rate from 6.0% to 5.9%. The BOE minutes are also due, with a potential shift to a dovish stance likely to lead to pound weakness.

CHF

The franc was able to advance to the dollar in recent FX trading, despite the lack of data from the Swiss economy. There are still no reports due from Switzerland today, which suggests that USDCHF’s movement could be driven mostly by US economic events.

JPY

The yen continued to advance against most of its forex counterparts, taking advantage of the run in risk aversion over the past few days. So far, there have been no major reports released from Japan, as traders are still digesting the potential impact of PM Abe’s victory on the economy and the currency. Earlier today, Japan’s trade balance release indicated stronger than expected results and might continue to lift the yen throughout the day.

Commodity Currencies (AUD, NZD, CAD)

The comdolls were unable to recover in recent FX trading, as oil prices slid to a new record low once more. Geopolitical tension is also starting to weigh on risk sentiment again, in addition to the bleak data from China. The dairy auction turned out better than expected though, as the GDT price index marked a 2.2% gain. Later on, Canadian wholesale sales and New Zealand GDP are due.

By Kate Curtis from Trader's Way