EUR/USD gained sharply last week

!! Last Week Recap !!
*EUR/USD* gained sharply last week as worries about the sovereign debt
situation in Europe lessened and the prospect of rate hikes to combat
inflation in the Eurozone became increasingly more probable. The rate
began the week on a soft note, making its weekly low of 1.3243 seen on
Monday as the United States observed the Martin Luther King Jr. Bank
Holiday, and markets prepared for the ECOFIN meeting of Eurozone
finance ministers in Belgium on Tuesday. EUR/USD then reversed and
began trading sharply higher on Tuesday after rumours that most EUR
shorts had covered after the previous week's successful debt
auctions in Portugal and Spain. In addition, finance ministers of the
stronger European nations in Brussels pledged to strengthen and
perhaps even expand the European financial safety net from its current
€750B. ECB President Trichet stated that the fund should be "as
flexible as possible" regarding the quality of the fund. Also
supporting the Euro, was the successful auction of 5.5B in Treasury
Bills by Spain, €4.5B in 12-month bills, which yielded 2.95%, while
€1B in 18-month bills yielded 3.36%, both yields were lower than the
3.45% and 3.72% yields respectively from the previous auction. In
economic releases, German ZEW Economic Sentiment came out at 15.4,
more than double the market consensus of a 6.5 reading, and Eurozone
ZEW Economic Sentiment, which showed a reading of 24.4, also
considerably better than the 17.3 reading the market was anticipating.
In U.S. numbers, TIC Long Term Purchases came out at +85.8B,
considerably higher than the +43.4B expected. EUR/USD continued
trading sharply higher on Wednesday, breaking the 1.3500 level after
news that U.S. Housing Starts had dropped to 529K versus 550k
expected, its worst level since October of 2009. Also out on Wednesday
were U.S. Building Permits, which increased to 640K versus 560K
expected. In European releases, the Eurozone Current Account came out
showing a deficit of -11.2B versus a consensus of -10.2B. On Thursday,
EUR/USD consolidated with the Greenback trying to recover as the price
of gold dropped to the $1,350 level and news came out that Irish Prime
Minister Brian Cowen was forced to call an early election after an
effort to reshuffle his cabinet backfired and a third of his cabinet
walked out. In economic releases, German PPI increased by +0.7% month
on month, beating the consensus of a +0.5% increase. In U.S. numbers,
Initial Jobless Claims came in at 404K, beating the consensus of 422K
and its lowest level in 21 months, while U.S. Existing Home Sales came
out at +5.28M, that was considerably better than the +4.88M expected.
Friday saw EUR/USD make its weekly high of 1.3623 after the German Ifo
Business Climate Survey came out at 110.3, edging the consensus of a
110.0 print, and its ninth consecutive rise. EUR/USD then went on to
close at 1.3613, a gain of +1.8% from its previous weekly close.

*USD/JPY* lost some ground last week as the U.S. Dollar weakened on
mixed economic data. The pair began the week on a soft note, as the
United States observed the MLK Bank Holiday and despite the Japanese
Household Confidence survey coming out at a disappointing 40.1 with
the market expecting 41.7. On Tuesday, USD/JPY continued heading lower
after Japanese Revised Industrial Production came in at +1.0% month on
month, as widely expected and despite a favourable U.S. TIC Long-Term
Purchases number. USD/JPY then fell sharply on Wednesday making its
weekly low of 81.84 after the Japanese Tertiary Index rose a
seasonally adjusted +0.6% edging the consensus of a +0.5% rise and
better than the +0.3% gain made in October. USD/JPY then reversed on
Thursday and traded sharply higher making its weekly high of 83.11, in
response to a positive U.S. Initial Jobless Claims number and to
better than expected U.S. Existing Home Sales. On Friday, USD/JPY gave
back part of the previous day's gains despite Japanese All
Industries Activity falling by -0.1% month on month, considerably
worse than the consensus of a rise of +0.2%, with the previous number
revised from -0.2% to -0.3%. USD/JPY then went on to close the week at
82.55, showing an overall loss of -0.5%.

*GBP/USD* continued gaining last week as the United Kingdom reported a
slew of favourable economic numbers. The week began on a positive note
as the United States observed the MLK Bank Holiday and news that the
U.K. Rightmove HPI that increased by +0.3% month on month, versus a
previous reading of -3.0%. Tuesday saw Cable make its weekly high of
1.6058 after U.K. Headline CPI rose by +3.7% year on year, which was
significantly better than the +3.3% consensus, also, Core CPI rose by
+2.9% year on year, versus a consensus of a +2.6% rise. The numbers
indicate increasing inflation that may increase the likelihood of a
BOE rate hike. GBP/USD continued higher on Wednesday after the U.K.
Claimant Count Change showed a drop of -4.1K, which was considerably
higher than the -0.3K decline expected. On Thursday, the Greenback
strengthened after U.K. CBI Industrial Order Expectations came out at
-16, which was significantly worse than the -1 expected. Also
supporting the Greenback were encouraging U.S. Existing Home Sales and
Initial Jobless Claims. On Friday, GBP/USD recovered all of
Thursday's losses despite U.K. Retail Sales declining by -0.8% month
on month, versus an expected -0.2% drop, and U.K. Preliminary Mortgage
Approvals at 40K versus 49K that was expected, nevertheless, the
previous number was revised upward from 45K to 48K neutralizing some
of its impact. GBP/USD went on to close at 1.6002 showing an overall
gain of +0.7% from its previous weekly close.

*AUD/USD* ended with little change last week despite a drop in the
price of gold and news out of China that the PBOC was raising reserve
requirements for the fourth time. The pair began the week on a
positive note as the U.S. observed the MLK Bank Holiday and Australian
New Motor Vehicle Sales increased by +0.8% month on month, with the
previous number revised significantly higher from +0.2% to +0.5%. On
Tuesday, AUD/USD continued higher as the price of gold and other
commodities increased and despite the Australian Westpac Consumer
Sentiment survey showing a reading of -5.7%, versus a previous reading
of +0.2%. The lower reading is in part due to the previous week's
flooding in Queensland. The pair continued trading higher on Wednesday
making its weekly high of 1.0076 after news that China's GDP grew by
+9.8% in the last quarter versus +9.3% that was expected. The pair
then began selling off after positive U.S. numbers and the Australian
MI Inflation Expectations coming out at +4.6%, versus a previous
reading of +2.8%. Thursday saw AUD/USD make its weekly low of 0.9831
as the price of gold dipped below the psychological $1,350 level and
the U.S. reported positive Home Sales and employment data. In
addition, Australian Import Prices declined by -3.8% quarter on
quarter, considerably worse than the consensus of a +0.9% rise. On
Friday, AUD/USD recovered somewhat in the absence of any significant
economic data out of either country. The pair went on to close at
0.9897, a mere two pips higher than the previous weekly close and
practically unchanged on the week.

*USD/CAD* traded higher last week on dovish comments from the BOC
after leaving rates unchanged. The week began on a quiet note with the
U.S. observing the MLK Bank Holiday on Monday. Nevertheless, the rate
drifted lower despite Canadian Foreign Securities Purchases, which
came out at 8.01B versus 10.42B that was expected, with the previous
number being revised upward from 9.51 to 9.71. On Tuesday, the rate
made its weekly low of 0.9835 before it began climbing sharply after
the BOC left their benchmark Overnight Rate unchanged at 1.0% as was
widely expected. The central bank said in their accompanying statement
that "the cumulative effects of the persistent strength in the
Canadian dollar and Canada''s poor relative productivity performance
are restraining this recovery in net exports and contributing to a
widening of Canadas current account deficit to a 20-year high."
USD/CAD continued stronger on Wednesday after Canadian Manufacturing
Sales declined by -0.8% month on month, which was significantly worse
than the increase of +0.6% the market was expecting. On Thursday, the
rate made its weekly high of 1.0030 despite the Canadian Leading Index
increasing by +0.5% month on month, edging the consensus of a +0.4%
increase, and Canadian Wholesale Sales increasing by +1.2%, that was
significantly higher than the +0.3% expected, while the previous
number was revised from a flat reading to +0.3%. Friday then saw
USD/CAD sell off after Canadian Retail Sales increased by +1.3% month
on month, versus +0.5% expected, while Core Retail Sales increased by
+1.0% month on month, versus +0.6% expected. USD/CAD then went on to
close at 0.9952, a gain of 0.6% overall from its previous weekly
close.

*NZD/USD* gave back its gains made the previous week last week as the
commodity currencies got hit hard with falling commodity prices,
including the price of gold, which dipped below $1,350 per ounce
level. The week stared on a positive note with the U.S. observing the
MLK Bank Holiday on Monday. On Tuesday, the rate held steady as the
U.S. reported some positive economic numbers. Wednesday saw the rate
make its weekly high of 0.7785 as the price of gold rallied to $1,379
per ounce. NZD/USD then began dropping sharply as gold sold off later
in the session. The rate continued getting hammered on Thursday after
New Zealand CPI came out +2.3% as was widely anticipated, and U.S.
employment and housing numbers weighed on the pair. On Friday, NZD/USD
made its weekly low of 0.7523 before rallying after New Zealand Retail
Sales showed an increase of +1.5% month on month, versus an expected
+1.3% increase; however, Core Retail Sales dropped by -0.2% month on
month, versus an expected increase of +0.6%. NZD/USD then went on to
close at 0.7583, a loss of -1.5% for the week.

!! The Week Ahead !!
*USD:* This week's U.S. economic calendar is moderately active, and
it will feature the U.S. Rate Decision and accompanying FOMC Statement
due out on Wednesday. Monday starts the week out with the tentatively
scheduled release of the Treasury Currency Report. Tuesday then offers
the S&P/CS Composite-20 HPI (-1.4% y/y), CB Consumer Confidence
(54.5), the HPI (-0.1% m/m) and the Richmond Manufacturing Index (23).