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: Concerns surrounding the Euro-zone economic outlook

Weekly Market analysis

There will also be further concerns surrounding the Euro-zone economic outlook, especially with downbeat ECB forecasts and peripheral economies still trapped in recession. The banking sector will also be an important focus with continuing fears surrounding the threat of de-leveraging. The ECB discussion of negative deposit rates will have an important impact in unsettling the Euro. The dollar will still find it difficult to gain strong support given expectations of further Fed quantitative easing. Key events for the forthcoming week Date Time (GMT) Data release/event Tuesday December 11th 10.00 German ZEW index Wednesday December 12th 17.30 US FOMC interest rate decision Thursday December 13th 13.30 US retail sales Dollar: There have certainly been mixed US growth indicators and there are concerns over a potential slowdown, but there will be expectations that the US will out-perform.  Both fiscal and monetary policies will remain an acute focus in the short-term. Negotiations surrounding the fiscal cliff will continue in the short-term with still little progress in talks between Congress and the Administration. If there is no progress within the next three weeks, sentiment could deteriorate sharply. There will be speculation that the Federal Reserve will announce additional bond buying plans next week to offset the ending of Operation Twist. The dollar should still prove broadly resilient, but struggling to gain strongly. The dollar was on the defensive initially, but did regain ground later in the week as European currencies were subjected to renewed selling pressure. The latest US ISM index recorded a 2012 low with a decline to 49.5 from 51.7 the previous month as the employment index also dipped to below the 50 level for the first time in three years. There was a slight deterioration in risk appetite following the release, although the impact was limited by a monthly gain in the US PMI index produced by Markit which triggered uncertainty surrounding the situation. There were fresh proposals on the US budget talks from both the President and House Republicans, although there was no evidence of significant progress at this stage with brinkmanship ahead of the year-end deadline still a notable feature. There was a weaker than expected ADP employment reading of 118,000 for November following a revised 157,000 gain the previous month.  There was a stronger than expected ISM services-sector reading of 54.7 from 54.2 previously.  There was, however, some disappointment surrounding the employment sector with a decline to 50.3 from 54.9 previously and there was caution ahead of Friday’s payroll release with a weaker headline figure expected. Euro There will be further relief surrounding the Greek Euro-zone package, especially if a successful debt buy-back programme can be implemented. There will still be a high degree of unease surrounding underlying trends as the peripheral economies remain trapped in recession.  There will be speculation that the ECB will sanction a further cut in interest rates and introduce negative deposit rates which would reinforce the Euro-zone underperformance in growth terms.  There is also still the risk that sovereign fears will intensify again. In this environment, the Euro will find it difficult to make much headway.  After advancing early in the week, the Euro was subjected to renewed selling pressure. There were better than expected terms for the planned Greek debt buyback which helped underpin sentiment. There was also a slightly more robust tone to Euro-zone sentiment and peripheral bond yields declined. There were some concerns surrounding the Spanish outlook with expectations that the 2012 budget target would be missed, but there was a slightly more confident tone surrounding the banks. There was some relief surrounding the Euro-zone PMI services-sector with a final reading of 46.7 from a flash 45.7, even though there was a further deterioration in the Italian reading. In contrast, there was a weaker than expected reading for Euro-zone retail sales with a monthly decline of 1.2% decline with an annual decline of over 3% which reinforced fears surrounding the spending and wider growth outlook. There was little change in yields at the latest Spanish auction, but total issuance was slightly lower than expected which suggested that demand was fading and there was a significant increase in yields following the auction.  There were reported comments from government officials suggesting that Spain would apply for sovereign bailout if there was a guarantee on yields, something which will be resisted strongly by the ECB which had some impact in unsettling the Euro. Italian political stresses as Berlusconi’s PD party did not support the government in the Senate vote on growth measures. Although the bill was approved, there were fears over renewed political instability and an early election as Berlusconi withdrew support from the government. There was a renewed decline in German bond yields. As expected, the ECB left interest rates at 0.75% at the latest Council meeting. There was a downgrading of growth and inflation forecasts at the meting with the 2013 GDP estimates for example cut to a range of -0.9% to +0.3% which suggested that greater risk of contraction than growth for the year. In the press conference, Draghi stated that there had been a wide discussion of interest rates, but with no decision which suggested that several members had pushed for a cut at this meeting. This reinforced speculation that rates could be cut early next year and a remark that the ECB was operationally prepared for negative deposit rates was particularly important in undermining the Euro. The comments reinforced fears surrounding the economic outlook and potential for lower interest rates which both sapped currency support. Yen:  There will be further concerns surrounding the Japanese economy.  The LDP, continues to hold an 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 threat of political deadlock which could delay action. The yen will also gain defensive support at times when risk appetite deteriorates. The yen was subjected to solid selling pressure on any significant gains as underlying yen sentiment remained weak with the dollar finding support below 82. There was caution over selling the Japanese currency further, especially in view of the substantial build up in short speculative positions seen over the past few weeks. There was also a reluctance to commit funds ahead of an extremely uncertain election later this month, especially as parliament is liable to be increasingly fragmented. Underlying yen sentiment also remained weak amid expectations that the Bank of Japan would take a more aggressive stance on monetary policy either by its own volition or due to enhanced government pressure. The latest opinion polls suggested that the LDP would be  able to secure a majority in the lower house following the December 16th election which maintained expectations of a weaker yen. Sterling There will be further doubts surrounding the UK economic outlook, especially with the OBR announcing a further significant downgrading of forecasts. The outlook for weak growth will also increase unease surrounding the debt outlook with the government admitting that targets will no longer be met. In this environment, there will unease over the threat of a downgrading to the AAA credit rating and there will also be intense pressure on the Bank of England to maintain a very aggressive monetary policy. This combination is unlikely to provide strong Sterling support. Sterling moved to test resistance levels above 1.61 against the dollar before losing ground later in the week even though it recovered losses against the Euro. There was a decline to 49.3 for the November manufacturing index from 50.9 previously, the fourth month of contraction seen during the second half of 2012. There was a weaker than expected reading for the UK PMI services-sector index of 50.2 from 50.6 previously which was the lowest reading since January 2011 as orders declined for the first time in close to two years. The government Autumn Statement was broadly in line with expectations as the GDP forecast was cut to -0.1% for 2012 with a 2013 forecast of 1.2% compared with the previous 2.0% with a downgrade of medium-term expectations. Given weaker growth, the Chancellor warned that the government’s debt targets would not be met with the debt/GDP ratio not peaking until 2015/16.  Fitch warned that the peak debt expectations were close to the limit for an AAA rating which will reinforce expectations of a 2013 downgrade. Although there was a substantial debate over the potential impact of any rating cut, there was an underlying mood of caution. The latest UK trade account data was weaker than expected with a goods deficit of GBP9.5bn from GBP8.4bn the previous month as exports were generally disappointing which had some negative impact on sentiment. There were no surprises with from the Bank of England with interest rates and quantitative easing on hold. Swiss franc: The National Bank will remain strongly committed to maintaining the 1.20 minimum Euro level in the short-term, especially with competitiveness still a very important issue, illustrated by the decline in consumer prices for November. There will be the potential for further inflows into the Swiss currency if there are further stresses within the Euro-zone.  Overall, the central bank should be able to hold the line in the short-term. The Euro advanced to an 11-week high just above the 1.2140 area against the franc on reports that the negative interest rates imposed by Credit Suisse and UBS on large-scale foreign deposits could be as much as 1%.  There was uncertainty surrounding the move with Credit Suisse suggesting a variable rate was likely. There was still important uncertainty surrounding the underlying Euro-zone outlook and yields on Swiss Treasury bills remained below zero which still suggested firm underlying defensive demand for the currency. There was a 0.3% decline in consumer prices for November compared with expectations of no change which reinforced unease surrounding the deflation threat and will also maintain pressure for franc gains to be resisted with the National Bank. The Euro retreated back to below 1.21 while the dollar found support close to 0.9250. Australian dollar The Australian dollar proved resilient on dips and tested resistance levels around 1.05 against the US currency. The Reserve Bank of Australia decision to cut interest rates by a further 0.25% to 3.00% had been priced in and dip not trigger additional selling. There was greater optimism surrounding the Chinese economy. There was also a stronger than expected labour-market report with employment increasing by over 12,000 which helped underpin confidence. There were still generally cautious remarks from Reserve Bank officials on the state of demand within the economy and the trade deficit widened to a four-year high. The Australian dollar has proved to be broadly resilient, but will find it difficult to make significant headway given the net global and domestic risk profile. Canadian dollar: The Canadian dollar was able to resist any further test of support beyond parity against the US currency and again tested resistance around the 0.99 level. As expected, the Bank of Canada held interest rates at 1.0% following the latest council meeting. The bank also resisted any significant shift to a more dovish tone on future policy which helped support the Canadian currency. Even with near-term resilience, the Canadian dollar is likely to weaken gradually, especially with growing unease surrounding the global growth outlook.

Daily Forex & Market News

Daily FX Commentary: (Morning Report)

EUR/USD

The Euro slipped below 1.3100 handle, on a corrective pullback from fresh daily high at 1.3125 and just ahead of initial target 1.3138. The pullback has been signaled by RSI / MACD divergence and overbought hourly conditions. Initial support zone at 1.3060/70, also 20 day EMA, has been tested so far, with loss of momentum on hourly chart and descending 4h indicators, suggesting that further correction cannot be ruled out. Next support lies at 1.3050/40 area, ahead of more significant 1.3000 level, 50% of 1.2879/1.3125, loss of which would be a signal for stronger correction of larger 1.2660/1.3115 ascend. However, early downside rejection and regain of 1.3100 barrier, would shift focus back to the upside targets.

Res: 1.3100, 1.3125, 1.3138, 1.3170
Sup: 1.3059, 1.3046, 1.3020, 1.3000


GBP/USD

Cable’s near-term action remains congested at 1.6100 zone, lacking momentum for retest of 1.6129, yesterday’s high, but losses so far being contained at range floor and 20 day EMA at 1.6085. This is still seen as consolidation of the recent rally from 1.5826, with gains being limited by at 61.8% of 1.6308/1.5826 descend. Indicators on 4h chart are losing traction and starting to point lower that keeps the downside at risk. Loss of 1.6085 base and 1.6075, Fib 38.2% of 1.5987/1.6129 upleg, would be a signal of further correction and test of strong 1.6050 support, previous congestion tops, daily Ichimoku cloud top and near 50% retracement, with daily close below 1.6100, required to confirm. Conversely, break and close above 1.6100 handle, would keep upside favored.

Res: 1.6100, 1.6119, 1.6129, 1.6174
Sup: 1.6085, 1.6075, 1.6060, 1.6041 


USD/JPY

The pair returns to the range after bouncing from 81.70 base, with 82.00 holding dips for now and keeping immediate target at 82.33, today’s high in focus. Hourly structure holds positive tone that supports the notion, however, still fragile situation on 4h chart requires caution and keeps the downside vulnerable. Lift above 82.33 is needed to improve the structure and re-focus recent highs at 82.74/83, while loss of 82.00 handle would increase risk of retesting range floor and possible stronger correction that would open next supports at 82.39 and 82.00, Fib 38.2% / 50% retracement of 79.06/82.83 rally.

Res: 82.33, 82.50, 82.60, 82.74
Sup: 82.00, 81.68, 81.58, 81.39


USD/CHF

Repeated recovery attempt off levels close to 0.9239 low, has again been capped at 0.9300, where 55 day EMA / Fib 61.8% of 0.9339/0.9239 downleg and daily Ichimoku cloud base have built strong barrier. Hourly studies regained some strength, however, situation on 4h chart required break above 0.9300 and regain 0.9340, 28 Nov high / Fib 38.2% of 0.9511/0.9239 downleg, to confirm recovery and avert immediate downside risk. Otherwise, today’s close below 0.9300 would confirm lack of strength for stronger corrective action and keep near-term focus at key 0.9213 support.

Res: 0.9297, 0.9300, 0.9315, 0.9339
Sup: 0.9265, 0.9248, 0.9239, 0.9213

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Daily Market Commentary: (Evening Report)

London Market Report

Markets unfazed by Osborne's budget

Market Movers
techMARK 2,113.95 +0.28%
FTSE 100 5,892.08 +0.39%
FTSE 250 12,103.11 +0.41%

The Footsie finished the day with decent gains on Wednesday as investors mostly shrugged off Chancellor George Osborne’s budget statement, with the upbeat mood helped by economic data from the US and increasing optimism about China.

“UK financial markets were largely unruffled by the Chancellor’s Autumn Statement,” said analyst Julian Jessop from Capital Economics.

“It’s taking time but the British economy is healing,” Osborne told MPs today, as revised figures from the Office for Budget Responsibility (OBR) mean that the government looks unlikely to achieve its target of reducing public sector net debt (PSND) as a share of GDP in 2015-16

The OBR now forecasts gross domestic product (GDP) to fall by 0.1% in 2012 and then to grow by 1.2% in 2013, revised down from March estimates of 0.8% growth in 2012 and 2.0% in 2013.

“The GDP growth projections were a bit worse than expected and austerity was extended another year, to 2017/18, although Mr Osborne seemed sanguine about the possibility of missing his target of getting debt as a share of GDP falling by 2015/16,” Jessop said.

Wall Street opened higher this afternoon after the US ISM service-sector purchasing managers’ index rose to 54.7 in November, from 54.2 the month before. The figure came in better than the 53.5 consensus estimate.

Concerns over the ‘fiscal cliff’ continue to weigh on investors’ minds, however as market strategist Ishaq Siddiqi from ETX Capita explained: “for today, markets are putting that to aside, perhaps comfortable with the fact political posturing from both Democrats and Republicans alike is to be expected until its crunch time and they have no choice but to whack out an agreement.”

Meanwhile, hopes for the Chinese economy improved today after regulators in the country dropped a rule that limited insurers’ investments in banks. Furthermore, the think-tank, Chinese Academy of Social Sciences, predicted that Chinese economic growth would quicken to 8.2% in 2013, from an estimate expansion of 7.7% this year.

Europe Market Report 

European Markets Pared Early Gains On Weak Economic Data

The majority of the European markets managed to hold onto some modest gains at the end of Wednesday's trading session. The markets got off to a good start thanks to optimism over China. The country's new party chief made comments which suggested that its supportive economic policy will remain in place. Some weaker than expected economic results from Europe and the United States had a negative impact on the market and concerns over the fiscal cliff in the U.S. persist.

EU finance ministers' attempt to strike a deal on a common supervisor for euro area banks hit a roadblock on Tuesday as nations remained split on the terms of the proposed "single supervisory mechanism."

The ministers have agreed to meet again next week, ahead of the EU leaders' summit scheduled for December 13-14. The meeting is expected to resolve the disagreements over the single supervisor, which could enable Europe to contain the banking woes of the single-currency region.

The United Kingdom is facing an extra year of austerity after missing deficit reduction targets due to an economic recovery that has been slower than expected. Presenting his Autumn Statement to the House of Commons, Chancellor George Osborne said," It's taking time, but the British economy is healing."

Austerity will extend into 2017-18, he added. Earlier, the consolidation was projected to end in 2016-17. The U.K. economy is expected to grow 1.2 percent next year and 2 percent in 2014.

China's new Communist Party chief Xi Jinping set his economic agenda ahead of the party's central economic planning meeting this month. Urbanization is indicated to remain the engine for China's economic growth. Meanwhile, the China Insurance Regulatory Commission abolished a rule that limited the investments insurers can make in commercial banks.

Chinese service sector growth moderated in November as new order inflow eased to its lowest level in three months, a survey by Markit Economics revealed Wednesday. The HSBC business activity index that measures the service sector performance fell to 52.1 in November from 53.5 in October.

The Euro Stoxx 50 index of eurozone bluechip stocks fell by 0.08 percent, while the Stoxx Europe 50 index, which includes some major U.K. companies, added 0.20 percent.

The DAX of Germany climbed by 0.26 percent and the CAC 40 of France rose by 0.28 percent. The FTSE 100 of the U.K. gained 0.39 percent, but the SMI of Switzerland declined by 0.02 percent.


Eurozone shoppers scaled down their spending for the third consecutive month in October, resulting in the biggest decline in retail sales in six months.

Sales fell 1.2 percent in October from a month ago, when it dropped 0.6 percent, EU's statistics office Eurostat said Wednesday. Sales were forecast to fall just 0.2 percent. October's decrease was the biggest since April when it was down 1.5 percent.

The euro area private sector contracted less than estimated in November, according to a survey released by Markit Economics.

The composite output index, which measures the combined output of the manufacturing and service sectors, rose to 46.5 in November from 45.7 in October, final data showed Wednesday. The flash reading was 45.8.

German service sector contracted at a slower pace in November, detailed results of a survey by Markit Economics revealed Wednesday. The outcome was in contrast to the preliminary finding that activity declined at a sharper pace than in October.

The headline business activity index for the service sector rose to 49.7 in November from 48.4 in October. The flash report showed a lower reading of 48.

French service sector contracted at a faster rate than initially estimated in November, data from a survey by Markit Economics and CDAF showed Wednesday. The seasonally adjusted purchasing managers' index (PMI) for the service sector increased to 45.8 in November from 44.6 in October. Preliminary estimates had shown a reading of 46.1.

UK's services sector expanded at the slowest pace in twenty-three months in November, data from a survey by Markit Economics and the Chartered Institute of Purchasing and Supply (CIPS) showed Wednesday.

The seasonally adjusted purchasing managers' index for the service sector dropped to 50.2 in November from 50.6 in October. Economists were looking for a reading of 51.

US Market Report

Focus On Fiscal Cliff Leads To Volatility On Wall Street

After showing a lack of direction throughout the previous session, stocks have seen considerable volatility over the course of the trading day on Wednesday. The big swings by the markets come as traders focus on the latest developments in Washington.

The major averages have shown a strong move to the upside in recent trading, although the Nasdaq remains stuck in the red. While the Nasdaq is down 10.88 points or 0.4 percent at 2,985.81, the Dow is up 110.11 points or 0.9 percent at 13,061.89 and the S&P 500 is up 5.42 points or 0.4 percent at 1,412.47.

The volatility on Wall Street comes as traders react to comments regarding the negotiations over an agreement to avoid the looming fiscal cliff.

While stocks moved to the downside following remarks by Republican leaders suggesting that lawmakers remain far apart on a potential deal, the markets rallied as President Barack Obama spoke to members of the Business Roundtable.

House Speaker John Boehner, R-Ohio, called on Obama to respond to an offer put forth by House Republicans while criticizing a White House plan he said "couldn't pass either house of the Congress."

The GOP unveiled a plan Monday that they claim will reduce the deficit by $2.2 trillion over ten years, but the proposal was rejected by the White House.

While the Republican plan includes $800 billion in new revenues, the higher revenues are achieved by closing loopholes rather than raising tax rates on wealthy Americans.

Meanwhile, Obama continued to call for the expiration of the Bush-era tax cuts for the wealthy as part of an agreement on the fiscal cliff.

"We're not insisting on rates out of spite, but rather we need to raise a certain amount of revenue," Obama told the Business Roundtable.

He added, "Among some Republicans over the last several days, I think there's been some recognition they can accept some rate increases as long as it's combined with serious entitlement reform and additional spending cuts."

The comments regarding the fiscal cliff have overshadowed a batch of largely upbeat U.S. economic data, including a report from the Institute for Supply Management showing an unexpected acceleration in the pace of service sector growth.

Other Markets In overseas trading, stock markets across the Asia-Pacific region moved to the upside during trading on Wednesday. Japan's Nikkei 225 Index advanced by 0.4 percent, while Hong Kong's Hang Seng Index surged up by 2.2 percent. In the bond market, treasuries have pulled back off their best levels of the day but continue to see modest strength. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 1.9 basis points at 1.589 percent. ==================================================================== 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.