EURO
The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3125 level and was capped around the $1.3185 level. Technically, today’s intraday low was right around the 38.2% retracement of the $1.5140 – 1.1875 range. Australasian dealers pushed the common currency lower overnight on a report the European Central Bank has “serious concerns” about proposed Irish legislation regarding the country’s banking system. There is speculation the new law, if passed, would inhibit the ECB’s ability to execute its liquidity operations. The common currency was also pressured lower on a report that troubled Irish banking giant Allied Irish Banks may be nationalized. Traders also pushed the common currency lower in anticipation of U.S. economic data that are due to be released this week will evidence a U.S. economy that is expanding more-than-expected. Q3 gross domestic product data will be released on Wednesday and many economists expect the preliminary +2.5% y/y estimate will be upwardly-revised. Liquidity will likely be lighter-than-normal this week on account of the Christmas holiday. Data to be released during the North American session today include the November Chicago Fed national activity index. In eurozone news, Eurogroup chairman Juncker this weekend reported the European Union “in January will have to tackle the question whether the funds that have been gathered to tackle the overall consequences of the crisis in case other countries will get in such a situation – which I don’t see happening but which I can’t exclude either – need to be increased.” Juncker also reported the euro “isn’t in a crisis” and is “astonishingly stable…We’re facing a debt crisis in individual euro area countries. The euro’s existence isn’t at risk.” ECB President Trichet said the euro’s dissolution is an “absurd hypothesis.” Ongoing eurozone sovereign credit jitters are also weighing heavily on the common currency. Data released in the eurozone today saw the October EMU-16 current account improve to -€2.3 billion from the revised prior reading of -€8.5 billion. Data to be released later during the North American session include December EMU-16 consumer confidence. Also, German November producer prices moderated to +0.2% m/m and +4.4% y/y. German data to be released tomorrow include the January GfK consumer confidence survey. Euro bids are cited around the US$ 1.3075 level.
YEN
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥83.75 level and was capped around the ¥84.10 level. Technically, today’s intraday low was right around the 38.2% retracement of the ¥85.95 – 80.25 range. Bank of Japan’s Policy Board began its two-day monetary policy deliberations overnight and is largely expected to keep policy unchanged. Many dealers believe the central bank will keep policy unchanged for the foreseeable future unless the yen resumes its move higher. BoJ Governor Shirakawa speaks tomorrow after the Policy Board’s decision is announced. The government, however, is expected to maintain pressure on the central bank to ease policy further. The central bank is also expected to keep its economic assessment unchanged when its policy decision is released overnight. Data released in Japan overnight saw the October coincident index tick higher to 100.8 while the October leading index improved to 97.7. Other data saw November nationwide department store sales reverse course and decline 0.5% y/y and November Tokyo-area department store sales weakened to +0.3% y/y while November convenience store sales improved to +1.1% y/y. Other data to be released this week include November merchandise trade. BoJ’s monthly economic report will also be released on Wednesday. Bank of Japan last week reported Japanese companies accumulated a record amount of cash on their balance sheets last quarter, consistent with this week’s BoJ quarterly Tankan survey that showed a decline in business confidence among large manufacturers. Traders continue to monitor developments on the Korean peninsula where military tensions remain significantly elevated and North Korea is indicating war if possible if South Korea engages in military drills. The Nikkei 225 stock index lost 0.85% to close at ¥10,216.41. U.S. dollar offers are cited around the ¥84.60 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥110.15 level and was capped around the ¥110.70 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥130.45 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥86.80 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan today as the greenback closed at CNY 6.6725 in the over-the-counter market, up from CNY 6.6640. Speculation mounted that Chinese interest rates will not be raised before the end of the year. Government researched Ba Shusong was quoted as saying that banks’ reserve requirements and central bank bill sales may be more efficient tools for controlling inflation than interest rate policy because higher rates may attract capital inflows. Reserve requirements have been raised six times this year. People’s Bank of China Governor Zhou last week reported global economic turbulence is limiting the central bank’s ability to raise interest rates to counter inflation. Notably, China’s inflation rate reached a 28-month high in November and PBoC has pledged it will transition to a “prudent” monetary policy stance in 2011. The central bank this month raised reserve requirements for banks for the third time in five weeks. The lack of an interest rate increase suggests there may be a lack of consensus at the central bank. China is said to be targeting 8% GDP growth and 4% inflation growth in 2011 along with 16% M2 money supply growth.
POUND
The British pound appreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5565 level and was capped around the US$ 1.5475 level. Technically, today’s intraday high was just above the 23.6% retracement of the $1.5910 – 1.5455 range. Data to be released in the U.K. tonight include the December GfK consumer confidence survey and data to be released to be released tomorrow include November public sector net borrowing and the November public sector net cash requirement. Minutes from Bank of England’s December Monetary Policy Committee meeting will be released on Wednesday and are expected to evidence intense debate regarding a possible shift in monetary policy. The Confederation of British Industry this weekend reported the central bank will likely begin to start raising interest rates within six months to reduce inflation. BoE released its semi-annual Financial Stability Report last week in which it warned the U.K. is only “partially insulated” from the European financial crisis. MPC member Posen last week reported policymakers should not “overreact” to inflation while BoE Deputy Governor Bean last week warned “elevated inflation” may persist in the U.K. economy. Cable bids are cited around the US$ 1.5265 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8455 level and was capped around the £0.8495 level.
FRANC
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 0.9650 level and was capped around the CHF 0.9720 level. Technically, today’s intraday low was right around the 23.6% retracement of the CHF 1.0275 – 0.9460 range. Last week, the dollar failed to gain much headway above the CHF 0.9835 level, representing the 38.2% retracement of the CHF 0.9460 – 1.0065 level. Swiss National Bank member Jordan this weekend reported “There may be situations where interest rates have to be kept at a low level to ensure price stability, and where higher rates could threaten the economy.” SNB Chairman Hildebrand reported he remains concerned over the eurozone sovereign debt crisis, adding it could lead to “devastating” consequences if the euro depreciates sharply and the franc soars. Data to be released tomorrow include the November trade balance and November M3 money supply. The KOF Institute last week raised its Swiss GDP growth forecast slightly for 2011 and reported Swiss National Bank is likely to raise interest rates around the middle of 2011. Swiss National Bank’s quarterly interest rate announcement was announced last week in which policymakers maintained the central bank’s three-month Swiss franc Libor target rate at 0.25%. SNB’s 2011 inflation forecast was raised to 0.4% from 0.3% and its 2012 inflation forecast was reduced to 1% from the prior reading of 1.2%. SNB expects the Swiss economy to grow about 2.5% in 2010 and around 1.5% in 2011. The Swiss government last week raised its GDP growth forecast for 2011 to 1.5% from the 1.2% projection it noted in September. U.S. dollar offers are cited around the CHF 1.0180 level. The euro depreciated vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.2710 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.5000 figure.
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