The AUD rallied against most of its major counterparts

USD - The FOMC holds its last policy meeting of the year tomorrow. No interest rate or asset purchase changes are anticipated but markets will be closely watching the tone of the post meeting statement to see how the central bank views the impact of its latest round of quantitative easing, particular in light of the very recent rise in US Treasury yields. After last week's lack of US data releases, this week has a full slate. Tomorrow, headline retail sales for November are expected to surprise on the upside, as in particular gasoline sales have gone up, driven by higher oil prices. That said the details of the report should be soft, with retail sales ex autos rising a modest 0.1% much lower than consensus expectations. On Wednesday, core CPI is expected to remain modest, increasing 0.1 % m/m. In addition, the first figures for manufacturing confidence in the form of local business surveys from New York and Philadelphia Fed are due. A considerable rebound in empire manufacturing from -11.1 to 4.8 is anticipated. On the other hand, the Philly figures may fall back somewhat, after last month’s massive gain. Data for the housing market is expected to remain weak, but a slight increase in both housing starts and building permits is projected.
The same goes for the NAHB index where a one point increase is anticipated.

EUR - EUR is up today recovering in the European trading session from some mild downside pressures during Asian trading. There is no real Eurozone data out today, leaving EUR at the mercy of the ebb and flow of the USD. EUR speculative futures positioning from the Chicago Futures and Trading Commission showed the net short EUR position pushing further into negative territory as longs exited the market. In the near term, support for EURUSD has come in through the 1.3165 to 1.3180 range during the past four sessions, though the topside has seen pressure as intraday highs have displayed a propensity to generally register at lower levels over the past few sessions. Until the downside support range breaks, or the topside constriction is challenged, EURUSD seems to be range bound.

GBP - The Bank of England's Monetary Policy Committee kept rates steady and left the stimulus plan at 200 billion pounds. PPI input came in at 0.9% (exp 0.5%) while PPI output came in at only 0.3%. While this is a negative sign, sterling has shaken the news off and is trading at recent highs against the greenback.
A test of 1.6000 should surface this week and there will be strong resistance there. This week brings CPI and retail sales, and strong numbers here will certainly that level.

JPY - With the 2 year yield spread between the US and Japanese government bonds persisting at its highest level in months, driven by the sharp rebound in US yields, USDJPY has been urged higher and came close to besting the late November high in the pair near 84.41. The rapid move in US yields and the concurrent co-movement in USDJPY has caused the correlation between rates and the currency pair to rebound from two month lows, denoting the upside pressure on USDJPY that is likely to continue should the US short term rates dynamic persist.

CAD - As expected, the Bank of Canada left rates unchanged at last week's policy meeting. Capacity utilization rose for the fifth consecutive month, helping the strength of the loonie. We continue to see tighter and tighter tighter-day trading ranges – suggesting one of two things: the market is in holiday mode or that the market is having trouble getting excited about the CAD. Our guess is the latter, as .9980 has held three times recently and it appears more unlikely we will push through parity. This week is light on economic releases so look for another week of narrow trading ranges.

MXN - The Mexican peso strengthened against the greenback this morning as manufacturing and exports continued to support the recovery momentum of Mexico's economy. At the headline level, manufacturing IEEM rose to 54.0 from market estimate of 53.7, while non-manufacturing IEEM gained to 53.5 vs. the 53.1 forecasted. New orders jumped to their highest levels in 4 months (56.7), while employment hit its highest reading in the entire year (54.0).

AUD - The AUD rallied against most of its major counterparts as stocks and commodities gained after China refrained from raising interest rates. The currency rose after the rate move predicted by market participants failed to occur even as China's inflation accelerated to the fastest pace in 28 months. China is Australia's largest trading partner and investors speculated an increase in interest rates would damp exports to the nation. As a result the AUD is trading just under par with its US counterpart at 0.9940.

Last Week's Currency Highs and Lows and Forecast

Currency	Highs and Lows Last Week	Forecast
EUR	1.3442 – 1.3165	1.3600 – 1.3184
JPY	84.35 – 82.34	84.46 – 82.82
GBP	1.5871 – 1.5656	1.6092 – 1.5641
CHF	0.9916 – 0.9660	0.9790 – 0.9577
AUD	0.9965 – 0.9753	0.9990 – 0.9729
CAD	1.0141 – 1.0012	1.0147 – 0.9934
DKK	5.6626 – 5.5518	5.5992 – 5.4301
NZD	0.7671 – 0.7435	0.7625 – 0.7471
MXN	12.5334 – 12.3216	12.5417 – 12.1964
SGD	1.3193 – 1.3012	1.3210 – 1.2900
TWD	30.376 – 30.034	30.475 – 29.586
ZAR	6.9891 – 6.8226	6.9326 – 6.6873

U.S. Economic Indicators

Date	Indicators	Previous	Expected
12/15	FOMC Rate Decision (December 14)	1.8	3.9
12/15	Producer Price Index (November)	0.40%	0.60%
	Advanced Retail Sales (November)	1.20%	0.60%
12/15	Existing Home Sales (October)	0.90%	1.00%
12/16	Mortgage Applications (December 10)	-0.90%
	Industrial Producation (November)	0.00%	0.30%
12/16	Initial Jobless Claims (December 11)	421K	425K
12/17	Housing Starts (November)	519K	550K
	Leading Indicators (November)	0.50%	1.10%

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