EUR/USD recovered completely last week: in part due to positive results from debt auctions in several Eurozone countries

!! Last Week Recap !!
*EUR/USD* recovered completely last week from the previous week's
steep decline, in part due to positive results from debt auctions in
several Eurozone countries. The week began on a positive note, trading
higher after making its weekly low of 1.2905 seen Monday after
Portuguese 10-year bonds spiked up to yield 7.43%. The ECB was
rumoured to have intervened buying the bonds, making the yield drop
back to 7.1%. On Tuesday, EUR/USD continued gaining strength after
Philly Fed President Charles Plosser stated the Fed's
"aggressive" policies of monetary easing "may soon backfire"
unless the Fed takes steps to reverse it. He went on to say that the
Fed's most recent QE II package, "will need to be reconsidered"
in addition to the Fed's general easing policy if the economic
recovery in the United States "continues to gain traction".

Wednesday saw the rate continue sharply higher after Portugal
successfully completed a debt auction of €1.25B in government bonds
that mature in 2014 and 2020, the bid to cover ratios were 2.6 and 2.1
respectively with an average yield of 5.39% for the 2014 bonds, up
from 4.01%, and 6.71% for the 2020 bonds, down from a previous yield
of 6.80%. The results of the auction led some analysts to believe a
bailout for Portugal may not be necessary. In economic releases on
Wednesday, U.S. Import Prices rose +1.1% month on month versus an
expected +1.3% rise, and Eurozone Industrial Production, which gained
+1.2% month on month, that was significantly higher than the +0.5%
increase expected. EUR/USD continued its steep ascent on Thursday
after the ECB left its benchmark Minimum Bid Rate at 1.0% as was
widely expected. After the rate decision, ECB President Trichet made
statements on inflation at an ECB news conference in Frankfort.
Trichet stated that "Risks to the medium-term outlook for price
developments are still broadly balanced, but could move to the upside.

Upside risks relate in particular to developments in energy and
non-energy commodity prices." He added that "Looking ahead to the
next few months, inflation rates could temporarily increase
further." Leading some to believe the ECB would not be shy about
rate hikes to combat inflation. In U.S. releases, PPI rose +1.1% month
on month, versus an increase of +0.8% that was expected. The U.S.
Trade Balance came out with a -38.3B deficit versus an expected
deficit of -40.8B while Initial Jobless Claims came out showing 445K
versus a consensus of 405K. Adding additional support to the Euro on
Thursday were the results of a successful Spanish debt auction, which
raised €3.0B of five year bonds. While yields rose to 4.54% from a
previous 3.57%, the bid to cover ratio rose from 1.6 in the previous
auction, to 2.1. The Eurozone bond auctions last week also had China
joining Japan in the purchase of European bonds. On Friday, EUR/USD
made its weekly high of 1.3456 after Goldman Sachs announced it was
reversing its Euro position from short to long with 1.3700 being their
new target level. In Friday's releases, EZ CPI came in at +2.2% year
on year, while Core CPI rose +1.1%, both as widely expected. Also, the
EZ Trade Balance, showing a deficit of -1.9B, again as anticipated. In
U.S. releases, CPI rose by +0.5% month on month, edging the +0.4%
consensus, and Core CPI, which increased by +0.1% month on month as
was widely expected. Also out on Friday were U.S. Retail Sales showing
a disappointing increase of +0.6% month on month, versus +0.8%
expected, and Core Retail Sales, which also disappointed at +0.5%
month on month, versus a consensus of a +0.7% rise. In addition, the
University of Michigan's Consumer Sentiment survey came out with a
reading of 72.7, versus an expected reading of 75.5. EUR/USD then sold
off on profit taking to close the week at 1.3372, an overall gain of
+3.5% from the previous weekly close.

*USD/JPY* lost fractionally last week as the Greenback lost ground
against most other major currencies. The rate began on a soft note on
Monday as Japan observed the Coming of Age bank holiday. On Tuesday,
the rate reversed and traded higher, making its weekly high of 83.48,
despite comments by Philly Fed President Charles Plosser. In economic
releases on Tuesday, Japanese Leading Indicators came out at 101.0%
versus 100.9% that was expected, while the Japanese Current Account
showed a surplus of +¥1.15T, which was considerably higher than the
consensus of +¥0.99T. Wednesday saw USD/JPY reverse direction again,
trading lower after Japan announced it would begin buying Eurozone
debt. On Thursday, the rate continued its decline despite news that
Japanese Core Machinery Orders declined by -3.0%,that was considerably
worse than the increase of +2.1% expected. Also out on Thursday, were
Japanese Preliminary Machine Tool Orders, which came out with a
reading of 63.5% year on year, versus a previous reading of 104.2%. On
Friday, USD/JPY gained back some ground after mixed economic numbers
out of the United States and in the absence of any significant
economic releases out of Japan. USD/JPY went on to close the week at
82.97, a mere five pips lower than the previous weekly close and
essentially unchanged on the week.

*GBP/USD* gained sharply last week, after closing the previous week
with little change. Cable began the week on a strong note, trading
higher off of its weekly low of 1.5474 seen on Monday. The rate showed
strength despite the U.K. Halifax HPI declining by -1.3% month on
month, that was considerably worse than the -0.3% consensus. Also out
on Monday was the U.K. BRC Retail Sales Monitor showing a decline of
-0.3% year on year versus a previous reading of +0.7%, its first drop
in eight months. GBP/USD continued trading higher on Tuesday after the
U.S. Fed's Charles Plosser commented on the need to reconsider the
Fed's QE II in light of the improving U.S. economy. Cable continued
trading sharply higher on Wednesday after rumours circulated that the
BOE was potentially hiking rates as early as the 3Q of 2011. Also, the
U.K. Trade Balance came out showing a deficit of -£8.7B versus a
consensus of -£8.2B. On Thursday, GBP/USD continued higher after the
BOE left its benchmark Official Bank Rate unchanged at 0.50% and the
Asset Purchase Facility at £200B as was widely expected. Also out on
Thursday was U.K. Manufacturing Production that increased by 0.6%
month on month, edging the 0.5% consensus. Friday saw GBP/USD make its
weekly high of 1.5887 after news that U.K. PPI Input had jumped by
+3.4%, which was more than double the expected +1.6% increase, while
PPI Output increased by only +0.5% versus an expected +0.4% rise. In
addition, mixed U.S. economic numbers and a weaker Retail Sales number
added support to Cable. GBP/USD went on to close at 1.5871, showing a
+2.1 gain for the week.

*AUD/USD* came off somewhat last week, with major flooding in
Queensland — that may cost Australia 0.1% of GDP — and a weaker
gold price adversely affecting the rate. The week began on a positive
note Monday after Australian Retail Sales increased by +0.3% month on
month as widely expected, although the previous number was revised up
slightly from -1.1% to -0.8%. Also out on Monday was the AIG
Construction Index showing a reading of 43.8 versus a previous reading
of 42.2. AUD/USD then sold off sharply on Tuesday as news of the
flooding became increasingly worse. The Queensland State government
estimated the cost for rebuilding its infrastructure to be AUD 5B.

Also weighing on the Aussie was the Australian Trade Balance showing a
surplus of +1.93B versus a consensus of a +2.03B surplus. AUD/USD then
reversed and traded higher off of its weekly low of 0.9803 on
Wednesday after Australian Home Loans increased by +2.5% month on
month, that was significantly higher than the -1.2% decline expected.

On Thursday, the rate consolidated after making its weekly high of
1.0019 after the Australian Employment Change showed the Australian
economy had added only +2.3K jobs in December, which was significantly
lower than the expected increase of +25.2K and significantly lower
than the previous reading of +54.6K. Nevertheless, the Australian
Unemployment Rate dropped to 5.0% from 5.2%, and beating the market
consensus of 5.1%. AUD/USD then sold off on Friday after news that
China unexpectedly raised its bank reserve requirement for the fourth
time in response to inflation which was running at 5.1% year on year
in November. A slowdown in China could adversely affect Australia.
AUD/USD went on to close at 0.9895, showing an overall loss of 0.7%
from its previous weekly close.

*USD/CAD* lost fractionally last week after mixed economic numbers out
of both the United States and Canada. The week began with the rate
making its weekly high of 0.9983 after Canadian Building Permits
dropped by a whopping -11.2%, notably less than the increase of +0.8%
the market was expecting, with the previous number revised upwards
from -6.5% to -6.2%. On Tuesday, the rate began heading south after
Canadian Housing Starts came out at 172K versus 179K expected;
nevertheless, the previous number was revised significantly upward
from 187K to 198K which neutralized the effect. On Wednesday, the rate
continued dropping making its weekly low of 0.9847 after the Canadian
NHPI increased by +0.3% month on month, beating the consensus of a
+0.1% increase. Thursday saw the Greenback gain strength despite the
Canadian Trade Balance showing a deficit of only -0.1B, which was
significantly better than the -2.0B expected, while the previous
number was revised upward from -1.7B to -1.5B. On Friday, USD/CAD
consolidated after trading higher on mixed U.S. economic numbers, and
went on to close at 0.9892, off -0.2% for the week.

*NZD/USD* recovered somewhat last week after the previous week -2.4%
decline. The pair began the week on a strong note on Monday despite
the New Zealand Trade Balance showing a deficit of -186M,that was
significantly higher than the -133M deficit expected. Nevertheless,
the previous reading was revised significantly higher from -319M to
-224M which neutralized the effect. On Tuesday, NZD/USD made its
weekly low of 0.7559 despite the NZIER Business Confidence survey
showing a reading of 8 versus a previous reading of 6, and the New
Zealand Business Consents increasing by +8.8% month on month, versus a
previous reading of -1.8% revised from -2.0%. NZD/USD then resumed its
upward bias on Wednesday as risk appetite favoured the Kiwi. The rate
continued higher on Thursday as U.S. economic numbers continued
showing mixed signals on the economy. NZD/USD then made its weekly
high of 0.7725 on Friday as the U.S. released a weaker Retail Sales
number. The pair then sold off on profit taking to close the week at
0.7668, showing an overall gain of +0.8% from its previous weekly
close.

!! The Week Ahead !!
*USD:* This week's U.S. economic calendar is somewhat less active
than last week, and it will feature key U.S. housing market data like
Building Permits and Housing Starts on Wednesday and Existing Home
Sales on Thursday. Monday is the Martin Luther King Bank Holiday in
the United States, but it still offers a speech by FOMC Member Plosser
in Santiago and the tentatively scheduled Treasury Currency Report.

Tuesday then has scheduled the Empire State Manufacturing Index
(12.5), TIC Long-Term Purchases (46.7B) and the NAHB Housing Market
Index (17). Wednesday features the highlighted Building Permits
(0.56M) and Housing Starts (0.55M) data. Thursday offers weekly
Initial Jobless Claims (423K), the highlighted Existing Home Sales
data (4.90M), the Philly Fed Manufacturing Index (21.1), the CB
Leading Index (+0.7% m/m), Natural Gas Storage (last -138B) and Crude
Oil Inventories (last -2.2M). That will end the week since Friday has
nothing notable due out.

*AUD:* The upcoming Australian economic calendar is about as active as
the previous week, and it will feature the closely watched MI
Inflation Expectations number due out on Thursday. Monday starts the
week off with the scheduled release of the MI Inflation Gauge (last
+0.4% m/m) and New Motor Vehicle Sales (last +0.2% m/m). Tuesday has
nothing of note due out, while Wednesday offers the Westpac Consumer
Sentiment survey (last +0.2%). Thursday then features the highlighted
MI Inflation Expectations (last +2.8%) survey, and Friday will end the
week with Import Prices (+0.9% q/q). Technically, AUD/USD consolidated
last week, seeing a weekly low of 0.9803 on Wednesday and a high of
1.0019 on Thursday before softening to close at 0.9895 on Friday.

Although penetrating a bit below it last week, the rate ended last
week right around the lower support line of a key bullish medium term
upward channel now drawn at 0.9896, with a rising top line currently
drawn at 1.0880, with another mildly rising medium term trend line
potentially offering resistance to the rate now at the 1.0268 level.
If the aforementioned key support trendline breaks this week, look for
lower levels for AUD/USD, but one may well see new highs again for the
rate in the coming weeks if this trendline support holds. Furthermore,
last week's price action remained well above AUD/USD's 200-day
Moving Average, which now reads at 0.9295 and has a positive slope
that still indicates a bullish medium term outlook for the pair.

Nevertheless, the rate's key 14-day RSI has moved below the central
neutral line and now reads in the central part of neutral territory at
44 that should not impede a move in either direction. Initial
resistance for the rate is seen at 0.9906, and then above that at
0.9991 and the 1.0019/28 region around the psychological 1.0000 parity
level, and then above that at 1.0151, 1.0197 and 1.0255. Support for
AUD/USD is indicated initially in the 0.9803/96 region, and then below
that at 0.9752, 0.9622 and 0.9536.

*NZD:* The forthcoming New Zealand economic calendar is about as
active as the previous week, and it features key New Zealand CPI
inflation data due out on Thursday. Monday will start the rather quiet
week with the release of the FPI (last -0.6% m/m), but both Tuesday
and Wednesday have nothing notable scheduled for release. Thursday
then features the highlighted NZ CPI data (+2.3% q/q), as well as the
Business NZ Manufacturing Index (last 52.7). Friday then ends the week
with the important NZ Retail Sales (+1.3% m/m) and Core Retail Sales
(+0.6% m/m) data. Technically, last week's sessions saw NZD/USD
consolidate early in the week above its weekly low of 0.7559 seen on
Tuesday before rallying sharply on Thursday to a high of 0.7725 on
Friday and then coming off to close the week at 0.7668. Last week's
rising price action still remained above the key 61.8% retracement
level at 0.6944 of the down move from 0.8213 to the 0.4892 low of
March 4th, 2009, thereby keeping the next major technical target to
the upside at the key 0.8213 high last seen on March 14th of 2008.

Furthermore, the pair continues to sustain gains above the lower
support line of its slightly diverging medium term up channel that is
now drawn at the 0.7402 level, with its upper line now at 0.8377. A
break of the lower line would be needed to call into question the
rate's bullish outlook from a chart pattern perspective.

Furthermore, NZD/USD continues to trade above its key 200-day Moving
Average that now comes in at 0.7284 and retains its upward slope to
yield a bullish medium term outlook for the pair. Support for NZD/USD
is now seen initially on the charts at 0.7633, and then below that in
the 0.7454/0.7561 region that encompasses the important psychological
0.7500 level, and at 0.7385. Resistance shows up in the 0.0.7707/25
and 0.7812/72 regions, and then above that at the important 0.7973 and
0.8213 levels.

*GBP:* The U.K. economic calendar this week will again warm up a bit
compared with the previous week, and it will feature the U.K.
Employment Report due out on Wednesday. The more active data week
starts on Monday with the scheduled release of the Rightmove HPI (last
-3.0% m/m) number, while Tuesday has Nationwide Consumer Confidence
(49), the RICS House Price Balance (-43%), U.K. CPI (+3.3% y/y), Core
CPI (+2.6% y/y), the RPI (+4.8% y/y) and the DCLG HPI (+5.9% y/y)
scheduled. Wednesday then features the highlighted U.K. Employment
Report, with the Claimant Count Change (-1.4K), the Average Earnings
Index (+2.2% 3m/y) and the U.K. Unemployment Rate (7.9%). The CB
Leading Index (last +0.4% m/m) is also due out Wednesday. On Thursday,
look for CBI Industrial Order Expectations (-1), while Friday offers
U.K. Retail Sales (-0.1% m/m) and Preliminary Mortgage Approvals
(49K). Technically, GBP/USD rallied notably higher last week, trading
off of its weekly low of 1.5474 seen on Monday up to its weekly high
point of 1.5887 on Friday, before then closing on a firm note at
1.5871. This price action remains below key resistance at the 1.5909
level, although the rally accelerated on the break of the upper line
of a short term declining wedge pattern now at 1.5584, but it stopped
just ahead of the upper parallel line now at 1.5887 of a potential
falling channel that would have its lower line coincident with the
wedge's lower line now at 1.5197. Furthermore, GBP/USD sustained
another weekly close above its 200-day Moving Average that now reads
1.5426, and its slope has turned slightly positive to yield a mildly
bullish medium term outlook for GBP/USD. Nevertheless, some correction
to the downside may be in order this coming week since the rate's
14-day RSI is in the upper central part of neutral territory at 63
that may somewhat impede further upside price action. Resistance to
the topside for GBP/USD shows initially at 1.5887 and 1.5909, and then
above that at 1.5996 — just under the psychological 1.6000 level and
at 1.6106. Support for the pair is indicated initially at 1.5809, and
then below that at 1.5716, in the 1.5510/82 region, and at 1.5405.

*EUR:* The upcoming Eurozone's economic calendar calms down compared
with the previous week, and it will feature the German and Eurozone
ZEW Economic Sentiment surveys due out on Tuesday. Monday is quiet, so
Tuesday starts the rather quiet week off with the ECOFIN Meetings, and
also features the highlighted German ZEW Economic Sentiment (6.3) and
EZ ZEW Economic Sentiment (17.3) surveys. On Wednesday, look for the
EZ Current Account (-9.3B), while Thursday offers German PPI (+0.5%
m/m), the ECB Monthly Bulletin and EZ Consumer Confidence (-12).
Friday then ends the week with the German Ifo Business Climate survey
(110.0), and the Belgium NBB Business Climate survey (4.3).

Technically, EUR/USD traded generally higher last week off of its
weekly low of 1.2873 seen on Monday. The rally accelerated on Thursday
to a spike high of 1.3456 on Friday before the rate then closed lower
at 1.3372. In doing so, the rate broke back above the psychological
1.3000 level and closed the week notably above its key 200-day Moving
Average's present level of 1.3070. This fact, combined with the
indicator's slight negative slope, has now neutralised the medium
term outlook for the pair. Furthermore, the rate's 14-day RSI has
returned to the upper central part of neutral territory at the 57
level that should not significantly impede future price action in
either direction. Support for EUR/USD shows initially at 1.3314, in
the 1.3055/88 region and at 1.2968 around psychological support at the
1.3000 level, and then below that at 1.2873. Resistance to the topside
is seen initially in the important 1.3420/98 region, and then above
that in the 1.3697/1.3775 region and at 1.4043.

*JPY:* The Japanese economic calendar coming up calms down a bit
compared with last week, and it will feature Tertiary and All Industry
Activity data due out on Wednesday and Friday respectively. Monday
will start the week off with only the release of Household Confidence
(41.7), while Tuesday offers just Revised Industrial Production (+1.0%
m/m). Wednesday then features the highlighted Tertiary Industry
Activity (+0.6% m/m), but Thursday is quiet. Friday will end the week
with the highlighted All Industries Activity (+0.2% m/m) data.

Technically, last week saw USD/JPY consolidate and soften slightly
within a range bounded by a high seen on Tuesday of 84.48 and a low
seen on Friday of 82.40, before the rate closed the week at 82.97. The
rate is now bumping up against the upper of its declining medium term
channel trend lines that is currently drawn at the 83.36 level, and a
break above this line could see USD/JPY trade sharply higher.

Furthermore, if the 84.51 level is bested, then Fibonacci projection
targets of the initial corrective wave upward from the major 80.24 low
up to the more recent 84.51 high of December 15th are 1:1=85.18,
1:1.236 = 86.19, 1:1.5 = 87.32 and 1:1.618 = 87.82. Nevertheless, the
rate continues to trade significantly below its 200-day Moving Average
that is now at 86.31, and the slope of that key indicator continues to
be negative, thereby still yielding a bearish medium term outlook for
the pair. Resistance for USD/JPY currently shows up initially in the
83.37/67 region, and then above that in the 84.34/51 region and at
85.38. Support for the rate is seen initially in the 82.37/84 region,
and then below that at 81.66, at 80.91, and in the 80.24/52 region
just above key psychological support at the 80.00 level.

*CAD:* The Canadian economic calendar coming up warms up a bit
compared with the previous week, and it features the key BOC Rate
Decision and associated Rate Statement due out Tuesday. The more
active data week begins on Monday with the scheduled release of
Foreign Securities Purchases (10.42B). Tuesday then features the
highlighted BOC Rate Statement in which the central bank is expected
to leave its benchmark Overnight Rate steady at 1.00%. Wednesday
offers Manufacturing Sales (+1.1% m/m), as well as the important
quarterly BOC Monetary Policy Report and its accompanying BOC Press
Conference. Thursday has scheduled the Leading Index (+0.4% m/m) and
Wholesale Sales (+0.4% m/m). Friday then ends the week with Core
Retail Sales (+0.6% m/m) and Retail Sales (+0.5% m/m). Technically,
USD/CAD traded initially softer to a new long term low of 0.9847 last
Wednesday, before then spiking higher on Friday to a weekly high of
0.9976. Nevertheless, the rate met resistance at parity and came off
to close the week at 0.9890. The rate again closed the week below its
key psychological parity level of 1.0000, and its price action has
generally stayed below the centre point of a gradually downwards
trending channel bounded by an upper line now drawn at 1.0414 and a
lower line that now provides support at 0.9848. Nevertheless, a
descending wedge is also forming within that channel, indicating
upside potential for the rate if the pattern's declining upper line
now at 1.0093 is exceeded. The rate also stayed well below its 200-day
Moving Average last week that is now at 1.0256 and mildly downwards
sloping, which suggests a gently bearish medium term outlook for the
rate. The chart for USD/CAD shows initial resistance at 0.9898, then
above that in the 0.9974/1.0033 congestion region around the key
psychological 1.0000 level, in the 1.0145/76 region and at 1.0208.
Initial support for the rate shows up at 0.9887 and 0.9847, and then
below that at 0.9818, in the 0.9709/55 region and at 0.9056.