G-20 Meetings Focused on Currencies; BOJ Retains Rates

Finance heads of 20 advanced nations, or the G-20, have recently congregated to discuss pressing global issues. The two-day meeting concluded in Moscow on Saturday with particular attention put on the currency market. G-20 finance ministers took a hard line on currencies without mentioning any particular country and expressed concerns about governments making efforts to influence exchange rates. According to one notable statement, G-20 promised “not to target our exchange rates for competitive purposes.” Japan has been criticized by several analysts and officials for driving down Yen, as Prime Minister Abe is keen on employing looser monetary policy to fight deflation. Bank of Japan Governor Shirakawa, however, said yesterday that the G-20 communique is “absolutely in the same spirit as our monetary policy.”

Several key central banks have announced interest rates and policy decisions in the last three weeks, and this week it was Bank of Japan’s turn. BOJ retained its overnight call rate at the range of 0 and 0.1 percent. Bank of Japan made known that growing signs of improvement in advanced economies are present but they remain cautious at the same time.

Commodities

As expected, gold has made a decisive move this week, slamming price $72 down to break out of the consolidation. This is its biggest weekly range move in more than 6 months and traders could be in for something here. Gold fell below the $1,600 level for the first time since around August as recent data out of China and the US are showing signs of economic recovery, prompting a reduced demand for gold as a haven. The next area of contention on the downside would come in around the lower $1,500s.

Oil also made a significant move this week after buyers failed to prop demand above the $98 level. Sellers brought price back down toward the low-$95s on Friday and closed the week just under the $96 level. Friday’s $2+ daily move was its biggest since late December, and bears seem keen on keeping a lid on prices in the coming weeks. It would be interesting to see if bears would be able to reach the $90-$93 area soon. Oil has declined because of concerns that fuel demand may weaken, after reports of weak US and Euro-area data, particularly US industrial output and Eurozone exports.

Currencies

EURUSD made progress in the first three days of the week as price made new highs throughout. However, the ongoing development halted after buyers hit a roadblock above 1.3500; that is when price spiraled back down and created new weekly lows. 1.3350 gave way in the process and price ended the week at 1.3360. More buyers should support price and bring it back up above 1.3400 this coming week to negate any developing bear momentum.

USDJPY resumed its upmove this week and went on to create new highs. The pair hit a new high of 94.45 at the start of the trading week, but price action waned for the rest of the week. Price is getting heavier and sellers kept a lid on price at 93.80 for the last three days. Buyers must maintain their enthusiasm moving forward, otherwise bears would jump in to control price action and send it back toward the 90 level.

It was practically a one-way trading for GBPUSD this entire week as the 1.5600 fortress gave way to insurmountable bear strength. In the fundamental front, BOE Governor King said the nation faces “big challenges” and inflation is expected to remain above the 2 percent target despite possibility of weak growth moving forward. Confederation of British Industry also lowered its expectation of growth for 2013.

The Week Ahead

The week will start out with another quiet Monday, and the only notable news releases are Australia’s New Motor Vehicle Sales for January, China Foreign Direct Investment, Euro-area Current Account, and ECB President Draghi’s speech. US banks are closed to commemorate President’s Day (Washington’s birthday).

Tuesday will provide more action in the form of Monetary Policy Meeting Minutes from the BOJ and RBA, Germany and Euro-area ZEW Economic Sentiment, Canada’s Foreign Securities Purchases and Wholesale Sales, and US Mortgage Delinquencies.

On Wednesday, there are New Zealand’s PPI Input and Output, and speech from RBNZ Governor Wheeler; Australia’s CB and MI Leading Index and Wage Price Index; Japan’s Trade Balance and All Industries Activity; German PPI, and CPI from Germany and France; UK Claimant Count Change, Unemployment Rate, MPC Policy Meeting Minutes, and Average Earnings Index; Switzerland’s ZEW Economic Expectations Survey; US PPI, Building Permits, Housing Starts, Fed’s Meeting Minutes.

Thursday’s action begins in the European session with Switzerland Trade balance; Flash Manufacturing PMI and Flash Services PMI for Euro-area, France, and Germany; UK CB Industrial Order Expectations, Public Sector Net Borrowing; 10-year bond auctions for Spain, UK, and France; US Unemployment Claims, CPI, Philly Fed Manufacturing Index, Flash Manufacturing PM, crude oil inventories, Existing Home Sales, and speech from Fed’s Bullard.

Friday will remain active with RBA Governor Stevens’ speech; New Zealand Credit Card spending; Italy Retail Sales; Germany’s Final GDP and Ifo Business Climate; Canada’s CPI and Retail Sales data; Belgium NBB Business Climate; and US FOMC member Powell’s and Tarullo’s speech.