Currency Focus

EUR - Will Jean Claude Trichet follow his American colleague and leave European interest rates unchanged? Well, according to last week's data most likely he will. So the ECB rate decision will be in the forefront this week but before that let's go over last week's numbers. On the positive side, we can only mention German Retail Sales which came much higher than expectation and the German unemployment rate which also improved.
The ECB gave pretty clear guidance in January that there would be no change in February, but (that there) would be in March.

GBP - Also keep an eye on GBP. It has come through a corrective period this week (without breaking EUR/GBP 0.6650), but with the MPC meeting due next week, this could see a resumption of recent strength in the very short-term. A rate hike next week seems unlikely, but given what happened in January, the market maybe nervous about the outcome and this could see EURGBP settling back below 0.6600. Near-term resistance is now set at 0.6625.
The five MPC members who voted for a hike in January believe in pre-emptive action to limit the peak at which rates will have to be raised, so they will likely go for a hike this time around as well. I believe that a rate rise in February, while the economy is able to absorb it, is the likely option. They have a choice of tackling inflationary pressures head on with a further rate rise in February, or gambling by taking a 'wait and see' approach in the hope that inflationary pressures will decline in the first quarter of 2007. Overall there is something for both hawks (higher inflation readings) and doves (need to wait to see effects of earlier hikes).

AUD - The focus will be on the RBA. People will be looking for an indication of how hawkish they'll be.