Scheduled for Sunday, Japan’s lower house elections will start the week off with a bang. Two party leaders are emerging as the front runners, with Prime Minister Yoshihiko Noda battling it out with LDP President Shinzo Abe heading into the weekend. An Abe win would not only return the LDP to power, it would strengthen speculation that a change in policy is likely on the way. The LDP leader has noted a commitment to more spending and looser monetary policy by the BOJ.
Expect the USDJPY to run higher towards 85.00 if the polls ring true and Abe is elected. Any retracement will likely be shallow and temporary – targeting the 83.00 round figure barrier.
RBA Meeting Minutes (December 17th, 7:30PM EST)
Meeting minutes from the most recent Reserve Bank of Australia meeting are likely to only reveal what has been established - the Australian economy is showing signs of slowing down. Although previously supported by a booming mining sector, the country has recently exhibited a slowdown as “growth has been running close to trend”, according to RBA Governor Glenn Stevens. The assessment has left the recent 25 basis point reduction in the overnight cash rate “appropriate”.
Expect weaker fundamentals and speculation of lower rates in 2013 to hover over the AUDUSD pair in the short term. The notion should reinforce resistance at the 1.0600 round figure.
German IFO Business Survey (December 19th, 4:00AM EST)
Expectations are for business sentiment to rebound in Germany for the month, in line with the investors’ confidence survey seen last week. Investor sentiment reversed in December, bouncing to a 7-month high. Although the same isn’t expected for the IFO, readings are anticipated to move to 101.9 from a 101.4 in November – the second uptick in the last three months.
Should Euro bulls get a boost from the report, expectations are high that the 1.3200 round figure will be tested. This would be the last line of defense for EURUSD bears until 1.3300.
BOE Meeting Minutes (December 19th, 4:30AM EST)
A highly anticipated event, the BOE meeting minutes release will reveal to market analysts the extent of any divide between policymakers on the previous interest rate decision two weeks ago. Although there isn’t much to be said in the way of the actual decision – to keep both interest rates and the asset purchase facility unchanged – notes from discussions will be scrutinized to see how dovish (or hawkish) the bank has become. A unanimous decision among policymakers will likely power the pound higher as it would support recent speculation that further easing may be unnecessary in the UK economy.
Pound sterling could find support at 1.6150 in the short term, which would serve as positioning ahead of a potential 1.6225 test.
Bank of Japan Monetary Policy Meeting (December 19th-20th)
As the first Bank of Japan monetary policy meeting following the national elections, the December decision will garner a lot of attention in next week’s schedule. Should LDP leader Shinzo Abe win, it would place the BOJ between a rock and a hard place. On one end, policymakers may need to allow for looser monetary policy, which would fall in line with the newly elected administration and sacrifice the central bank’s independence. On the other, policymakers may elect to do nothing until next year, defying the administration and retaining its independence. Either way, the event is surely to gain some volatility for USDJPY and yen crosses.
US Existing Home Sales (December 20th, 10:00AM EST)
A lot of bullish hoopla has been surrounding housing sales in the US, and it is likely to continue based on expectations for next week’s existing home sales report. Sales in November are expected to rise to an annualized pace of 4.85 million homes. This would continue the positive streak and create the third up month in the last four. Rising sales would bolster the already growing notion that the US housing sector continues to be the backbone of growth this year. However, sector focused optimism is likely to do little for the US dollar, so long as the US Fiscal Cliff debate rages on.