Weekly Market analysis - ECB is significantly more optimistic

Weekly Market analysis

The ECB is significantly more optimistic surrounding the financial outlook, at least in public which will help underpin Euro sentiment, with rate cuts taken off the agenda for now.  There is also a more confident tone surrounding the Chinese economy, although this optimism could fade very quickly given underlying credit conditions. In this environment, risk appetite could deteriorate quickly again. Key events for the forthcoming week Date Time (GMT) Data release/event Tuesday January 15th 13.30 US retail sales Friday January 18th 02.00 China Q4 GDP Friday January 18th 09.30 UK retail sales

Dollar: 

The most likely outcome continues to be solid US growth in the short-term even though there has been a persistent trend for mixed economic releases. Federal Reserve policy will continue to be an important short-term focus with some increased expectations over an ending of quantitative easing this year. Member comments will be watched very closely ahead of the end-January meeting. The overall tone is still likely to be broadly dovish which will lessen potential dollar support.  Risk conditions will be watched closely with tensions liable to resume over the US debt-ceiling talks and defensive dollar support may increase again.  

The US currency was unable to break significant technical levels against the Euro and dipped sharply later in the week following the ECB policy meeting with a retreat back towards 1.33.

The latest US employment report was relatively close to expectations with a non-farm payroll increase of 155,000 for December from an upwardly-revised 161,000 gain the previous month. The unemployment rate was static at 7.8% and there was a modest increase in earnings. The data will reinforce expectations of a solid US expansion, but markets were expecting a strong release which lessened the potential for further dollar buying support.

There was a stronger than expected reading for the ISM non-manufacturing index with an increase to 56.1 for December from 54.7 the previous month with a particularly strong reading for the employment report which maintained optimism surrounding the outlook and potential for US out-performance.

The decision to water-down Basel bank capital reserve requirements from 2015 should have some positive impact on risk conditions which would also curb underlying dollar demand.

The Administration formally nominated Jack Lew as the new Treasury Secretary. Any comments on the debt ceiling and fiscal situation will be watched very closely and any remarks on the dollar will also be watched very closely. 

US jobless claims were slightly higher than expected at 371,000 in the latest week from a revised 367,000 previously while there was a downward revision to the Philadelphia Fed index for December, but the overall impact was limited

Euro

Structural fears surrounding the Euro-zone will remain lower in the short-term. There has been a further easing of peripheral bond yields with improved investor demand for securities. The ECB is more confidence over the financing risks and appears much less willing to consider a further cut in interest rates. Confidence could, however, unravel quickly, especially with continuing GDP declines in the peripheral economies such as Spain with high levels of unemployment also increasing social tensions. Euro support is therefore liable to fade again quickly on fresh economic fears. The Euro found firm support close to 1.30 against the US currency and advanced strongly later in the week after the ECB policy meeting. There was a small improvement in Euro-area business confidence, but the unemployment rate increased to a record 11.8%. Data from peripheral economies inevitably remained the key focus with Spanish and Greek unemployment above 25% as youth unemployment remained above 50%. There were further concerns surrounding the substantial political tensions associated with extremely high unemployment levels. The German industrial data was again weaker than expected with a 2.9% annual decline despite a small monthly recovery which continued to cause some unease surrounding the Euro-zone growth outlook.  There was also uncertainty surrounding German parliamentary support for a Cyprus bailout which had some small negative Euro impact. There was a stronger than expected Spanish debt auction as the five-year bond yield declined to below 4.00% from 4.20% previously and Spain was also able to sell more than the targeted amount which increased confidence in the peripheral bond market and pushed benchmark yields down further. As expected, the ECB left interest rates on hold at 0.75%, although there had been some calls for the bank to cut rates.  In the press conference, Draghi remained generally downbeat surrounding immediate growth prospects with a warning that risks were still to the downside and that further balance sheet adjustments were needed. Inflation risks were described as broadly balanced. The rest of the briefing was significantly more optimistic as Draghi stated that financial conditions had improved to a marked extent. The ECB President stated that the decision to leave interest rates on hold had been unanimous and gave the impression that there had been no calls for rates to be cut, in contrast to the December meeting. Although he refused to rule out the possibility of further rate cuts, markets moved to price-out any reductions during 2013 and this had a strong impact in boosting Euro demand. The Euro was also boosted by Draghi’s refusal to comment on exchange rates as he pointedly stated that the ECB did not have an unemployment target. Yen:   There will be intense pressure for the Bank of Japan to engage in further aggressive policy easing with widespread expectations that the central bank will introduce a revised 2% inflation target at next week’s meeting. There will also be scope for a further monetary easing while the government will announce a further  fiscal expansion. Defensive demand for the yen will also fade if there is a sustained improvement in risk appetite and confidence in the global growth outlook.  A substantial amount of yen negative fundamentals have, however, been priced in which could trigger a sharp correction. The yen remained under heavy selling pressure during the week with correction attempts quickly attracting selling pressure on the Japanese currency. The US currency pushed to a 29-month high above 89 and the Euro also advanced very strongly during the week. There were widespread expectations that the Bank of Japan would introduce a 2% inflation target at next week’s policy meeting which would trigger a further easing of monetary policy by the central bank. The yen was also undermined by improved sentiment towards global financial conditions. The Japanese currency was subjected to further heavy selling pressure later in the New York session. Prime Minister Abe stated that the government would launch a JPY10.3trn spending package to boost the economy and there was also pressure on the Bank of Japan to target employment as well as inflation. The economic data provided no support for the yen with a JPY222bn current account deficit for November, reinforcing fears over the balance of payments position.

Sterling There will be further uncertainty surrounding the UK outlook with particular unease surrounding the consumer spending outlook as incomes remain under pressure and there will be expectations of weak 2013 growth. The balance of payments situation will also come under greater focus with unease over potential funding pressures if there is a sustained decline in defensive Sterling demand. In contrast, there will be Sterling support from the aggressive monetary policies in the US and Japan. Trends in risk appetite will still be important at times and the UK currency will tend to gain some support when confidence in is stronger, but the currency overall will find it difficult to make much headway. Sterling was able to find support close to 1.60 against the dollar with rallies back to the 1.6150 area while the UK currency was on the defensive against the Euro with a move beyond the 0.82 level. The UK goods deficit declined slightly to GBP9.2bn from GBP9.5bn the previous month with a modest gain for exports. There was still underlying unease surrounding the trade outlook with exports still unable to make much underlying headway and there were also expectations that trade would be a small negative influence on the fourth-quarter UK GDP data. There were no surprises from the Bank of England as it held interest rates steady at 0.50% and also decided against any further boost to the quantitative easing programme from GBP375bn. The UK currency gained some underlying support from the decision not to expand policy further, especially with expectations that the Federal Reserve will continue to buy bonds in the short-term. Swiss franc:  The National Bank will remain strongly committed to maintaining the 1.20 minimum Euro level in the short-term, especially with a strong determination to protect competitiveness and avert any serious deterioration in industrial conditions.  The imposition of negative rates by commercial banks will also undermine franc support. An easing of Euro-zone pressures will tend to lessen the potential for defensive capital inflows into the franc, but the currency will gain at times as an alternative to the Japanese currency. The dollar was unable to sustain a firmer tone against the franc and retreated to lows close to 0.91 later in the week. With the US currency cushioned to some extent by a weaker franc tone on the Euro cross with a move above 1.21. There were reports that the Zurich Canton Bank was setting negative interest rates on Swiss deposits, following the example of some major banks last year and this had a significant impact in weakening the Swiss currency. The ECB shift away from a potential rate cut also undermined the franc. Australian dollar The Australian dollar found support below 1.05 against the US currency and pushed to highs near 1.06 despite struggling on the crosses. There was greater optimism surrounding the Chinese economic outlook which also provided some degree of support for the Australian currency. The domestic data releases provided no support for the currency with a wider than expected trade deficit and a slight decline in retail sales for the month, although international trends tended to dominate. There will be immediate support from greater optimism surrounding the Chinese outlook, but confidence is liable to fade quickly and limit Australian dollar gains. Canadian dollar:  The US dollar was unable to push above the 0.99 level against the Canadian currency during the week before re-testing support below 0.9850 There were only limited domestic economic releases with a sharp decline in building permits offsetting the substantial gains seen the previous month while the PMI index edged back above the 50 level for December. Even with optimism surrounding the fundamentals and potential capital inflows, the Canadian dollar will find it difficult to sustain any significant gains.  ==================================================================== Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Weekly Market analysis - Fed minutes have injected a greater mood of uncertainty

Weekly Market analysis

Following the drama surrounding the US fiscal cliff talks, monetary and currency policies will remain a very important focus. The Federal Reserve will maintain a very loose monetary policy for now, butt he latest Fed minutes have injected a greater mood of uncertainty and the possibility of a tightening. TheBank of Japan will also be under intense pressure to boost policy further.  The ECB will also consider further action to underpin the economy which will ensure very loose monetary conditions and may serve to lessen the threat of a severe deterioration in risk appetite. Key events for the forthcoming week Date Time (GMT) Data release/event Friday January 4th 13.30 US employment report Thursday January 10th 12.00 Bank of England interest rate decision Thursday January 10th 12.45 ECB interest rate decision Dollar:  The US fiscal deal has eased immediate fears surrounding a disorderly policy tightening. Nevertheless, there will still be a significant policy tightening which will have some impact in curbing consumer spending growth.  The deal was also only a stop-gap measure and there will be further political confrontation surrounding spending cuts and the debt ceiling. There will be uncertainties surrounding the growth outlook and risk conditions. There is a very dovish Federal Reserve committee for 2013, but the latest minutes will spark some speculation that there will be some tightening later in 2013. Net longer-term yields should be dollar supportive for the US currency. After initial weakness following the US budget deal, the dollar found support near 1.33 against the Euroand rallied strongly against European currencies Following the deal to avert the immediate US fiscal crisis, there was a renewed consideration of the longer-term outlook. There were further concerns that the spending issue would have to be tackled again before the end of February and Congress will also have to tackle the debt-ceiling issue with the potential for further tense negotiations. There was some reassessment of risk considerations which also curbed dollar selling. As far as the US data releases were concerned, there was an increase in the ISM manufacturing index to 50.7 from 49.5 which provided some degree of relief. The ADP employment data was stronger than expected with a gain of 215,000 private-sector jobs for December from a revised 118,000 previously. Although there was a higher than expected release for jobless claims, there was greater optimism surrounding the US payroll report. The latest FOMC minutes stated that some members were concerned surrounding risks associated with further quantitative easing, especially as it would make it more difficult to secure an eventual exit strategy. In this context, several members wanted to scale-back bond purchases well before the end of 2013. There was still some degree of caution surrounding the labour market, but there was shift in expectations on potential tightening this year as markets had been primed for a very dovish tone.

Euro

Structural fears surrounding the Euro-zone have eased for now which will lessen the potential for aggressive selling pressure.  There will still be a high degree of unease surrounding the growth outlook and there will also be pressure for the ECB to relax monetary policy further.  The bank will still be uneasy over the prospect of negative deposit rates and there will also be opposition from the Bundesbank.  Any friction within the ECB will tend to undermine confidence in the Euro.  There is also less scope for capital repatriation which will tend to lessen scope for Euro buying and a Spanish aid request would be likely to provide only initial currency relief. The Euro was unable to sustain an initial advance following the New Year break and retreated sharply towards the 1.30 level against the dollar.   Italy’s lower house approved the 2013 budget in parliament and, as expected Prime Minister Monti submitted his resignation.  There were some suggestions that he could stand for election in forthcoming elections, but uncertainty remained high. The final Euro-zone PMI data was slightly weaker than expected with a dip to 46.1 from 46.3 as there was a dip in the German index with an improvement in the Italian index offset by a weaker Italian outcome. The data maintained some degree of unease surrounding the Euro-zone outlook which dampened Euro demand. There was some speculation that capital repatriation associated with the year-end Euro demand to bolster balance sheets had eased. An easing of flows could be significant in triggering a wider loss of Euro support. There was further speculation that the ECB could consider a cut in interest rates at the January meeting, but a higher than expected German inflation reading increased speculation that there would be Bundesbank opposition to any rate cut and there would also be unease within the Council over any move to set a negative deposit rate. Although a surprise decline in Spanish unemployment, provided some relief, there were concerns that the fall reflected longer-term unemployed leaving the labour market rather than any real improvement in conditions.  The German labour-market data was close to expectations with a 3,000 unemployment increase for December. The latest money-supply data recorded an eighth successive decline in private lending which maintained unease over the outlook, but there was a small increase in banking-sector deposits in Italy and Spain which provided some relief. Spain’s admission that it was using social security funds to buy government bonds also unsettled confidence and sparked expectations of a bailout soon. Yen:    There will be intense pressure for the Bank of Japan to engage in further aggressive policy easing with the next policy meeting due in the third week of January.  The government is also planning a further round of aggressive fiscal stimulus in an attempt to ease deflationary pressure. These factors combined will tend to have a negative impact on the yen, especially with a lack of confidence in the Japanese fundamentals. The Japanese currency will still gain some degree of support when risk appetite deteriorates and there will also be pressure for a limited correction after recent sharp losses. The yen remained extremely weak as it dipped to the lowest levels in more than two years against the dollar. Incoming Prime Minster Abe continued aggressive calls for deflation to be tackled and warned that he would look to change the central bank Act which ensures independence if the Bank of Japan fails to meet inflation targets. Expectations that there would be aggressive action to ease deflation risks through aggressive monetary and fiscal policies continued to have a negative impact on the yen.  Weak underlying yen sentiment was offset by pressures for a technical correction following sharp losses and the dollar consolidated above the 87 level with Japanese markets still closed for a holiday. The dollar found strong support on dips and pushed back above 87 with initial support from the stronger than expected US ADP report. There was further buying support following the Fed minutes with a shift in expectations. Japanese markets re-opened following the new-year break which triggered a fresh round of yen selling, particularly with a widening in yield spreads to the highest level since April. The dollar pushed to a fresh 29-month high above 87.75 against the Japanese currency.

Sterling There will be mixed expectations surrounding the UK outlook with a divergence in analyst expectations and mixed data. Overall, there is slightly reduced fear surrounding the threat of another slide into recession, especially with some evidence that consumer lending is improving. In relative terms, the UK currency will also gain some support on relative grounds with expectations of loose monetary policies in the US and Euro-zone.  The UK currency will tend to lose ground when risk appetite deteriorates and will struggle to make further significant headway against the US currency. Sterling initially spiked higher against the US currency following the New Year break before hitting strong selling pressure with a retreat to lows below 1.61 . The UK data was significantly stronger than expected with an increase in the PMI manufacturing datato 51.4 for December from a revised 49.2 the previous month which was the highest figure for 16 months. The data also provided some degree of optimism surrounding the UK economy which provided underlying Sterling backing. There was initial Sterling support from an improvement in international risk appetite as the UK equity market tested the highs from mid 2011, but there was a slightly more cautious tone later in the week which pushed Sterling lower. The latest PMI construction report was weaker than expected with a decline to a six-month low of 48.7 from 49.3 the previous month. The data dampened optimism triggered by the stronger than expected manufacturing release and the latest services-sector data will be watched very closely on Friday and will have an important impact on underlying sentiment. Swiss franc:  The National Bank will remain strongly committed to maintaining the 1.20 minimum Euro level in the short-term, especially with a strong determination to protect competitiveness and avert any serious deterioration in industrial conditions. Aggressive policy relaxation elsewhere will maintain the risk that upward pressure on the franc will intensify again as investors look for a safe-haven, especially if the Japanese yen is subjected to further selling. The Euro held relatively steady against the franc, but was unable to hold above 1.21. After finding support around seven-month lows, the US currency pushed to a fresh 3-week high above 0.9280 as the dollar secured wider support. The latest PMI report recorded an increase to 49.5 for December from 48.5 previously. In contrast, the latest KOF index retreated to 1.28 for the month from 1.50 previously which will maintain unease surrounding business confidence and pressure for franc gains to be resisted. Australian dollar The Australian dollar continued to probe resistance above 1.05 against the dollar, but it was unable to sustain the gains and retreated back to below this resistance area late in the week. The currency drew initial support from gains in risk appetite following the US fiscal deal before the mood turned more cautious again as enthusiasm faded. There was a slightly more optimistic tone surrounding the Chinese outlook which provided some support for the Australian currency. The domestic PMI indices were still generally lacklustre amid fears over a further slowdown with a significant deterioration in the services-sector index. Despite potential reserve diversification, the Australian dollar will find it difficult to sustain gains, especially as Chinese economic sentiment is liable to deteriorate again. Canadian dollar:  After finding support on dips towards parity, the Canadian dollar was able to recover ground and move back to the 0.9840 area on a general improvement in risk appetite following the US fiscal deal. The US currency was resilient at lower levels and moved higher as markets turned significantly more cautious while the Fed minutes provided net US support. Even with near-term resilience and optimism surrounding the fundamentals, the Canadian dollar will find it difficult to sustain any significant gains.  ==================================================================== Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Weekly FX & Market Analysis

Weekly Market analysis

Monetary policy will remain a very important focus following the Federal Reserve decision to sanction additional quantitative easing during 2013.  There will be further resistance to currency gains by Japanese and also potentially the Euro-zone and this will increase the risk for further more aggressive monetary policy action by the Bank of Japan and ECB. Overall, the dollar will find it difficult to make much headway unless there is a serious deterioration in international risk appetite. Key events for the forthcoming week Date Time (GMT) Data release/event Sunday December 16th Japan general election Wednesday December 19th 09.00 Germany IFO index Wednesday December 19th 09.30 Bank of England MPC minutes Thursday December 20th Bank of Japan interest rate decision Dollar: The Federal Reserve policies will remain an extremely important focus in the short-term. The decision to expand quantitative easing will tend to have a negative impact on the dollar.  The Fed is also committed to maintaining a highly expansionary monetary policy until there is a further marked improvement in the unemployment rate with a decline to at least 6.5%.  In this context, the dollar will find it difficult to gain any strong traction, but there will be some reward in terms of pro-growth policies and likely US growth out-performance. This will be a particularly significant factor if Euro-zone conditions deteriorate further. The dollar weakened against European currencies during the week on additional Fed action, but did show some degree of resilience.   The headline US employment data was stronger than expected with an increase of 146,000 for November from a revised 138,000 gain the previous month while the unemployment rate dipped to 7.7% from 7.9% the previous month. There was a downward revision to October’s payroll gain while the participation rate fell. The US trade deficit widened to US$42.2bn for October from US$40.3bn the previous month as exports were slightly weaker, although there may have been data distortions. The Federal Reserve left interest rates on hold at below 0.25%  following the latest policy meeting. The Fed announced that it would buy an additional US$45bn in Treasuries per month to replace Operation Twist which was in line with market expectations. As has been the case throughout the year, regional Fed President Lacker dissented and voted against further quantitative easing. The Fed downgraded its 2013 growth forecasts slightly. There was an important shift in forward policy guidance as the FOMC dropped the reference to a specific timeframe for keeping interest rates at extremely low levels until 2015. Instead, the Fed announced that it would introduce economic targets for keeping policy extremely expansionary. In particular, the threshold for a policy change would be an unemployment rate of 6.5% and policy would remain extremely expansionary provided the inflation rate did not rise to above  2.5%. There were no significant progress in the US budget talks and concerns surrounding the risk that no agreement would be reached before the year-end deadline. Euro There will be further relief surrounding the ability to defuse the acute Euro-zone crisis phase with agreement secured on the next Greek loan tranche while peripheral bond yields have fallen. There will still be a high degree of unease surrounding the underlying economic outlook, especially with recession conditions persisting.  Political tensions will also be very important with unease surrounding Italian elections early in 2013.  The underlying peripheral situation also remains extremely fragile and longer-term fears will continue.  There will also be speculation over a cut in ECB interest rates which will sap Euro support.  The Euro recovered some ground although this primarily reflected general dollar weakness rather than any great enthusiasm for the currency. Interest rate remained an important focus following Thursday’s ECB press conference where Draghi indicated that a rate cut had been discussed. There were unofficial briefings from ECB officials during the day, an unusual event in itself. There were suggestions that a majority of Council members had either proposed a rate cut or not been opposed and that a decision to cut rates had been blocked by Draghi and the German representatives. The overall impression was that rates could well be cut during the first quarter of 2013 which also had a negative Euro impact. Italian political tensions remained an important focus following Prime Minster Monti’s announcement that he would resign once the 2013 budget has been approved. The most likely outcome is that elections will be held in February which fuelled the mood of uncertainty. There were concerns that reforms could be in doubt with former Prime Minister Berlusconi’s intention to stand contributing to the mood of uncertainty. Stock markets fell sharply and there was a surge in bond yields with Spanish yields also rising sharply. Tensions did subside later in the day as Monti looked to offer reassurance over reforms. The German ZEW index was stronger than expected with a rise to 6.9 for November from -15.7 previously which was the strongest reading for seven months. The ZEW also stated that it considered the recent Bundesbank and ECB forecasts to be on the pessimistic end of the spectrum. There was some positive sentiment surrounding the Greek debt buyback, although the Greek government did have to pay more than expected which means that the decline in debt/GDP ratio will be slightly below target. There was a slightly more cautious outlook on the potential for a cut in ECB interest rates and there was some speculation that former Prime Minister Berlusconi would not stand in forthcoming elections.  The Euro-zone agreed on a framework for the new banking supervisor. Yen: The LDP, continues to hold a comfortable opinion-poll lead ahead of the December 16th General Election, maintaining expectations that there will be a much more aggressive monetary policy and potential changes to the Bank of Japan mandate next year. These expectations will undermine the yen, but there will still be the possibility of political deadlock which could delay additional policy measures. The yen will also gain defensive support at times when risk appetite deteriorates, but the underlying fundamentals will remain weak. The yen was firmly on the defensive during the week and weakened to fresh nine-month lows near 84 against the US currency while the Japanese currency also weakened sharply against the Euro. There were media reports that the Bank of Japan would sanction a further JPY5-10trn in quantitative easing at next week’s policy meeting which contributed to a negative yen tone There were further expectations that the LDP would win the forthcoming election and would also put additional pressure on the central bank to take more aggressive action. A slightly weaker than expected monthly increase of 2.6% for core machinery orders did not have a major market impact while the Tankan index was weaker than expected. A North Korean missile launch had some negative impact on the yen. Sterling There will be further doubts surrounding the UK economic outlook, especially with evidence that industrial output weakened sharply at the beginning of the fourth quarter.  The weak outlook will increase concerns surrounding the underlying fiscal outlook and also maintain pressure for the Bank of England to boost quantitative easing further.  Sterling will gain some degree of support on relative grounds given the aggressive Federal Reserve policy and the prospect of further ECB action. Nevertheless, Sterling is likely to be generally vulnerable given the UK fundamentals and credit-rating downgrade fears. Sterling was resilient against the US currency during the week, but struggled to break above the 1.6150 area and edged weaker against the Euro. The latest industrial data was sharply weaker than expected with a 0.8% decline in industrial production for October compared with expectations of a monthly rebound following the 2.1% drop seen in September. The data increased unease surrounding the fourth-quarter outlook and reinforced fears surrounding the economy as a whole. The NIESR estimated a growth rate of 0.1% in the three months to November with the October reading revised down sharply to 0.1% from 0.5%. The latest labour-market report was stronger than expected as the jobless claimant count fell by 3,000 compared with a revised gain of 6,000 the previous month.  The unemployment rate also held steady at 7.8% for October, in contrast to expectations of a small increase. Earnings growth was capped below 2.0% which maintained concerns surrounding the outlook for consumer spending. The prospect of further quantitative easing by the Federal Reserve, allied with speculation that the ECB would relax monetary policy further, had an impact in underpinning Sterling despite unease surrounding the growth outlook. There will be additional pressure on the Bank of England to take additional action. There was a warning from Standard & Poor’s that it was revising the AAA credit rating to negative from stable, reinforcing fears that one or more of the main rating agencies would downgrade the UK sometime during 2013. Swiss franc: The National Bank will remain strongly committed to maintaining the 1.20 minimum Euro level in the short-term. There will be further concerns surrounding the build-up of reserves, but there will also be a very strong determination to resist franc appreciation, especially with competitiveness still a key issue. Aggressive policy relaxation elsewhere will maintain the risk that upward pressure on the franc will intensify again. The dollar was on the defensive against the franc and retreated to lows below 0.9250. There were no surprises from the Swiss National Bank policy meeting with interest rates left on hold below 0.25% while the minimum 1.20 Euro level was also maintained. The central bank continued to insist that franc gains would be resisted with all necessary force. The latest producer prices data recorded no change in prices with a 1.2% annual increase which may ease deflationary pressure slightly.  The Euro retreated to lows in the 1.2080 area with disappointment that there was no suggestions of additional measures to weaken the franc and the dollar dipped to lows below 0.9250. There was a small recovery in the Swiss ZEW index to -15.5 the previous month Australian dollar The Australian dollar pushed higher with a move above the 1.05 level against the US currency. There were expectations that the Australian currency would gain support from international reserves diversification although there was also pressure for the central bank to act to restrain the currency as it remains substantially overvalued. The domestic data releases did not provide any support for the currency with a sharp decline in business confidence and consumer sentiment according to the latest surveys. A decline in gold prices was also a negative factor for the currency. The Australian dollar will gain support from reserve diversification, but there will still be resistance to gains with the Reserve Bank under pressure to intervene. Canadian dollar: The Canadian dollar was able to resist any significant weakness and strengthened to highs near the 0.9820 region against the US currency. The trade account was slightly stronger than expected, although the overall impact was very limited and there was some decline in gold prices which took the edge of the currency performance. Even with near-term resilience and optimism surrounding the fundamentals, the Canadian dollar will find it difficult to advance from current levels. ==================================================================== Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.