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The US dollar had an excellent week, winning against currencies across the board, with the Aussie and the loonie suffering the biggest losses. Is the second taper train coming? German ZEW Economic Sentiment, Rate decision in Japan and the UK as well as US Unemployment Claims and housing data are the main events on our calendar. Here is an outlook on the main market-movers for this week.

The US manufacturing sector registered strong performance with a remarkable rise in Empire Manufacturing. Together with a rise in retail sales and solid inflation numbers, the US dollar left the disappointing NFP behind and enjoyed gains. The pound managed to give a fight to the dollar thanks to superb retail sales, but the rest were on the defensive. The Canadian dollar reached a new four year low against the greenback, and the Aussie collapsed to new 3 year lows after a terrible jobs report. Even the “Teflon” euro eventually depreciated. Volatility continues to provide opportunities.

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  1. NZ inflation data: Monday, 21:45. New Zealand inflation advanced faster than expected in the third quarter, posting a two year high of 0.9% from the second quarter, above the 0.8% increase forecasted by analysts. This increase will prompt the RBNZ to raise rates in January 2014 and be the first developed country to tighten monetary policy in the midst of global financial crisis. Inflation is expected to remain unchanged this time.
  2. German ZEW Economic Sentiment: Tuesday, 10:00. Economic sentiment surged in December to 62.0, rising 7.4 points from November, amid fresh optimism regarding economic outlook in 2014. The rise was well above the 55.3 reading estimated by analysts. However the recent surveys were over optimistic in the last few months and did not reflect the recent drop in industrial production in October suggesting GDP will not grow in Q4 as expected, but the survey results show increased optimism for GDP growth in 2014. Another rise to 63.4 is forecasted now.
  3. Australian inflation data; Wednesday, 0:30. Australia’s Consumer Price Index edged up 1.2% in the third quarter, following a 0.4% increase in the second quarter. Economists expected a smaller advance of 0.8%. Furthermore, CPI increased 2.2% through the year to the third quarter. These strong figures suggest a growing probability for a rate cut in 2014. An increase of 0.5% is expected for the 4th quarter.
  4. Japan rate decision: Wednesday. The Bank of  Japan  kept its monetary easing, following the  U.S. taper decision helped weaken the yen to a five-year low against the dollar.  Governor Haruhiko Kuroda reiterated his pledge to expand the  monetary base  by an annual 60 trillion to 70 trillion yen ($670 billion) as widely anticipated. The yen’s 17% drop against the USD bolstered consumer price gains, increasing profits and advancing Kuroda’s endeavor of ending 15 years of  deflation. The Fed’s tapering ensures that the yen will stay on a weakening trend and a U.S. recovery will help lift Japan’s exports. No change in rates is anticipated.
  5. UK employment data: Wednesday, 9:30. The number of jobless claims in the UK fell by 36,700 in November to 1.27 million, and the unemployment rate fell to 7.4% in October, to its lowest rate since 2009. Prime Minister David Cameron remarked that the plan is working, but there is still much work to be done. The workforce should be larger in order to provide solid economic recovery. A further decline of 32,300 jobless claims is forecasted while unemployment is expected to decline to 7.3%.
  6. Canadian rate decision: Wednesday, 15:00. The Bank of Canada maintained its overnight interest rate in December, expressing concern over the weakening inflation trend lowering the Canadian dollar to its lowest level in three years. Analysts believe the BOC will keep rates unchanged through 2014 and start raising rates in the second quarter of 2015. The Bank of Canada targets 2 % inflation, within a range of 1 to 3 %. The rate has been below 2 % since May 2012 mainly due to softer gasoline prices. Rates are expected to remain unchanged. It will be interesting to see if the BOC reacts to the very weak jobs report.
  7. US Unemployment Claims: Thursday, 13:30. The number of Americans filing initial claims for unemployment benefits fell 2,000 last week to a seasonally adjusted 326,000, pushing the four week average by 13,500 to 335,000. The total number of Americans collecting unemployment benefits is expected to decline since a special federal program expired last month and is starting to affect recipients. Nevertheless, the number of new claims stabilized near pre-recession levels, indicating a solid recovery in the US economy. Jobless claims are expected to increase to 331,000.
  8. US Existing Home Sales: Thursday, 15:00. U.S. home sales declined sharply in November to an annual rate of 4.90 million units, the lowest level in nearly a year, due to an increase in interest rates. This drop suggests the housing market is losing its growth momentum. The Fed tapering worsened the situation further as well as the Federal Housing Finance Agency’s plan to reduce the maximum size of mortgages which can be bought by taxpayer which is expected to have its toll on the housing sector. A rise to 4.99 million units is expected now.

*All times are GMT.

That’s it for the major events this week. Stay tuned for coverage on specific currencies.

More:  This week in the markets: Positive data supports move higher in USD

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