Forex News Weekly

Markets consolidated with the US equity bourses showing the best returns of the major developed nations. Oil prices, along with the majority of the petroleum index moved lower as heavy supply and draining demand is putting pressure on the oil complex. The currency markets continue to fluctuate based on whether a deal has been solidified between Greece and its private debt holders. US economic data surprised on the upside.

January’s release of global PMIs indicates that the global economy began 2012 in better shape that many had expected in late 2011. In the US, the ISM increased to 54.1 from 53.1, but more importantly the forward-looking new orders surged from 54.8 to 57.6. While this supports moderate expansion in economic activity, investors were wondering if this is the peak. The Nonfarm payroll data released today surprised the markets. The gain in employment, 243000, was the largest since April 2011 and it far exceeded forecast of 140000. The unemployment rate fell from 8.5 percent in December to 8.3 percent - the lowest since February 2009. Lessening the chances of further monetary easing by the Federal Reserve, the positive numbers boosted the US dollar and the risk-on sentiment. Commodity currencies gained with higher expectations on global growth.

Positive employment data allowed investor to focus on overall earnings which continue to impress. During the week, the major of the companies beat expectations including Caterpillar and Qualcomm. Some of the numbers were staggering as corporate profits continue to impress the investor community.

Next week, the highlights for the euro zone are the ECB meeting, which takes place on Thursday and bond auctions from some of the core countries, including France, Austria and Germany. Overall, many expect the ECB to remain on hold this month, but the likely key to the meeting will be the subsequent press conference. The key development of the week is likely to be the change in the collateral requirements, which along with unprecedented 3-year LTROs, were the two most important elements of the recent policy changes by the ECB. The new rules will allow a wider range of asset backed securities to be used as collateral.

S&P Breaks Out

The S&P 500 Index along with the other major US equity indexes broke out to the upside on high volume. The index used support levels near the 20-day moving average to build a base, and then surged higher as the 50-day moving average crossed over the 200-day moving average mid week.

Oil Slumps on Heavy Supply

Oil prices moved lower, pushing through support levels and making its way into a lower range between 98 and 96. With the 20-day moving average crossing below the 50-day moving average, momentum will not be on the side of the bulls.

Next week the markets will be watching:

• Monday - Australian Retail Sales (0030 GMT)
• Tuesday - RBA Interest Rate Decision (330 GMT)
• Wednesday - US Oil Inventory Report (1530 GMT)
• Thursday - Chinese CPI (200 GMT), UK Industrial Production (930 GMT), BoE Interest Rate Decision (1200 GMT), ECB Interest Rate Decision (1245 GMT)
• Friday - German Consumer Prices (730 GMT), US Confidence (1455 GMT)