U.S. Forex Market Commentary

Euro
The euro appreciated vis-�-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3435 level and was supported around the $1.3325 level. The common currency reached its highest level since 14 December as European and North American dealers pushed the pair higher to interweek highs. Some dealers chased the common currency higher after it was reported that EMU-16 December flash consumer price inflation came in stronger-than-expected at +2.2%, up from the prior reading of +1.9%. This represents the first time the inflation rate has exceeded the ECB�s target of just below 2.0% since October 2008 and the rise was largely attributable to higher energy and food prices. German data saw December unemployment up 3,000, the first increase in seventeen months, with the unemployment rate steady at 7.5%. Also, French December consumer confidence fell to -36 from the revised prior reading of -33. After failing to fully sterilize about ?73.5 billion in EMU-16 peripheral bonds last week, the ECB succeeded today as liquidity and confidence surged. Spanish Prime Minister Zapatero reported Spanish financial institutions face a new round of stress tests "immediately.? In U.S. news, data to be released today saw November factory orders reverse course and climb +0.7%, up from the revised prior reading of -0.7%. Traders await the release of Federal Open Market Committee meeting minutes later during the North American session. The major data release in the U.S. this week include December non-farm payrolls data that will be released on Friday. Many forecasts are predicting jobs growth of 140,000 with the unemployment rate expected around 9.7%. Federal Reserve Chairman Bernanke will testify on Friday. The Federal Reserve may face a stormy 2011. Representative Ron Paul, who advocates the end of the Fed, will chair the House of Representatives subcommittee that oversees the Fed while the House Oversight Committee will be chaired by Republican Darrell Issa who has called for increasing the Fed�s transparency. Additionally, the regional Fed Bank Presidents who rotated in as voters in 2011 are said to be more hawkish than their other regional counterparts who will not be voting on the Federal Open Market Committee this year. Traders will ponder whether the US$ 600 billion monetary expansion announced by the Federal Reserve in early November will suffice and whether the Fed�s purchase of U.S. Treasury securities will keep a sufficient lid on market interest rates. Euro bids are cited around the US$ 1.3235 level.

Yen / Yuan
The yen depreciated vis-�-vis the U.S. dollar today as the greenback tested offers around the �82.25 level and was supported around the �81.60 level. Technically, today�s intraday high was right around the 38.2% retracement of the �84.50 � 80.25 range. Japanese financial markets reopened overnight after the New Year holiday. The dominant theme at the beginning of 2011 will be whether or not Bank of Japan will expand monetary policy further to counter the yen�s strength. A move below the psychologically-important �80 figure will likely be met with major jawboning and verbal intervention from officials along with possibly more yen-selling intervention. BoJ Deputy Governor Nishimura will visit the U.S. from tomorrow and traders will pay close attention to any remarks he makes. December monetary base data will be released tonight but there will not be any other major data released this week. The government last week reported it did not conduct official yen-selling intervention in December for a third consecutive month following its �2.12 trillion intervention actions in September. Data released in Japan last week saw December manufacturing PMI climb to 48.3 from the prior reading of 47.3. Finance Minister Noda last week verbally intervened against the yen�s strength again, vowing to take "bold action when moves are excessive.? Noda added the yen�s appreciation has been "one-sided? while Economy Minister Kaieda added "abrupt yen moves must be avoided.? The Nikkei 225 stock index climbed 1.65% to close at �10,398.10. U.S. dollar offers are cited around the �84.60 level. The euro moved higher vis-�-vis the yen as the single currency tested offers around the �110.25 level and was supported around the �108.90 level. The British pound moved higher vis-�-vis the yen as sterling tested offers around the �128.60 level while the Swiss franc moved lower vis-�-vis the yen and tested bids around the �86.70 level. In Chinese news, the U.S. dollar appreciated vis-�-vis the Chinese yuan today as the greenback closed at CNY 6.6100 in the over-the-counter market, up from CNY 6.6070. Data to be released tonight include December HSBC services PMI. China�s seven-day repo rate fell 2.03% to 4.31% today, the largest decline since October 2007. People�s Bank of China Governor Zhou reported the Chinese economy likely expanded around 10% in 2010. Zhou reported "External conditions made an important impact on our (economic) recovery, so we have not fully grasped whether the economy is already back to normal.? Zhou also reiterated policymakers need to execute a "prudent? monetary policy. 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-�-vis the U.S. dollar today as cable tested offers around the US$ 1.5645 level and was supported around the US$ 1.5455 level.
Technically, today�s intraday high was just above the 50% retracement of the $1.5910 - 1.5350 range. Many data were released in the U.K. today. First, December manufacturing PMI improved to 58.3 from the revised prior reading of 57.5. Second, November net consumer credit fell -�100 million. Third, November net lending secured on dwellings climbed �800 million. Fourth, November mortgage approvals were up 48,000 from the revised prior total of 47,300. Fifth, the November M3 money supply was off 0.8% m/m and off 1.4% y/y. The dominant themes in the U.K. this year will be the ongoing consolidation of fiscal spending and how Bank of England will react to significantly-elevated rates of inflation far above its inflation target. Bank of England Monetary Policy Committee Sentence last week reported official interest rates should "gradually? be raised to signal the U.K. economy is returning to "normal? and contend with inflation that may accelerate to double the BoE�s target in 2011. Sentance also reported the British economy "has bounced back from recession more strongly than most people were expecting. Cable bids are cited around the US$ 1.5265 level. The euro depreciated vis-�-vis the British pound as the single currency tested bids around the �0.8560 level and was capped around the �0.8635 level.

Franc
The Swiss franc depreciated vis-�-vis the U.S. dollar today as the greenback tested offers around the CHF 0.9475 level and was supported around the CHF 0.9325 level. Technically, today�s intraday high was just below the 50% retracement of the CHF 0.9665 � 0.9300 range. The Swiss media this week reported Swiss National Bank is expected to register a fourth quarter loss of CHF 11 billion on its currency reserve holdings. Data released in Switzerland this week saw the December purchasing managers index decline to 59.6 from the prior reading of 61.8. The dominant theme in Switzerland in 2011 will be whether or not Swiss National Bank restarts its franc-selling intervention operations, or even has the war chest do so to prevent exporters� margins from eroding. SNB incurred approximately CHF 22 billion of intervention-related losses in the first nine months of 2010 on account of its inability to halt the franc�s appreciation. Swiss National Bank Chairman Hildebrand has labeled the franc�s record rally a "burden.? U.S. dollar offers are cited around the CHF 0.9780 level. The euro appreciated vis-�-vis the Swiss franc as the single currency tested offers around the CHF 1.2680 level while the British pound moved higher vis-�-vis the Swiss franc and tested offers around the CHF 1.4790 level.
Source: Fxstreet.com