U.S. Forex Market Commentary

!! Euro !!
The euro appreciated vis-à-vis the U.S. dollar today as the single
currency tested offers around the US$ 1.3090 level and was supported
around the $1.2960 level. Technically, today's intraday high was
just above the 38.2% retracement of the $1.3435 – 1.2875 range.

Dealers lifted the common currency in response to Portugal's
successful €599 million ten-year bond issuance today at a yield of
6.716%, down from 6.806% on 10 November. Spain and Italy are scheduled
to issue up to an agreegate €9 billion in debt tomorrow and the euro
escalated on news of Portugal's success as traders had been
concerned that ongoing eurozone sovereign credit jitters would prevent
the highly-indebted country from getting the deal done. Despite
today's success, Portugal still has significant financing issues and
many dealers believe the country will be forced to accept a bailout
from the European Financial Stability Fund. China and Japan have both
verbally intervened to support the European credit markets over the
past week. The common currency also gained ground after German
Chancellor Merkel reported Germany will do "whatever is needed" to
save the euro. Rumours swirled this week that Germany would abandon
its opposition to an enlargement of the European Financial Stability
Fund, perhaps a tacit acknowledgment by Berlin that more and larger
bailouts are forthcoming. The ECB is not expected to alter monetary
policy tomorrow when its policy decision is announced. Eurozone data
released today saw November industrial production up 1.2% m/m and 7.4%
y/y. Germany confirmed its economy expanded at a 3.6% rate in 2010 and
its budget deficit worsened to -3.5% of gross domestic product. France
reported its November current account deficit widened to -€4.2
billion. In U.S. news, MBA mortgage applications were up 2.2% while
the December import price index was up 1.1% m/m and 4.8% y/y. Traders
await the Fed's Beige Book later during the North American session
and expect it will report a marginal increase in business and
employment activity across some Fed districts. Minneapolis Fed
President Kocherlakota yesterday reported unemployment is likely to
remain above 9% in 2011 with growth "closer to 3% than 4% in
2011." Euro bids are cited around the US$ 1.2740 level.

!! Yen / Yuan !!
The yen depreciated vis-à-vis the U.S. dollar today as the greenback
tested offers around the ¥83.45 level and was supported around the
¥82.95 level. Technically, today's intraday high was right around
the 23.6% retracement of the ¥80.25 – 84.50 range. Traders were
less inclined to hold yen long for a safe haven play after Portugal
successfully sold debt ahead of tomorrow's new issuance by Spain and
Italy. Japanese Finance Minister Noda this week reported his country
plans to purchase euro-denominated bonds to support Ireland, taking a
page out of China's recent playbook when it announced it would be
purchasing Spanish and other eurozone bonds. Bank of Japan Governor
Shirakawa was elected Vice Chairman of the Bank for International
Settlements, succeeding Hans Tietmeyer. Bank of Japan Deputy Governor
Nishimura this week reported the central bank needs to "avoid
creating an impression of the monetization of government debt.

Otherwise, purchases may lead to a substantial and lasting
ratcheting-up of long-term rates which would pose a serious problem
for economic recovery and the financial position of the government."

Nishmura also warned an increase in long-term rates could create a
"serious problem." Data released in Japan overnight saw December
M3 money supply growth narrow to +1.8% y/y while December bank lending
improved marginally to -1.8% y/y. Also, the November current account
balance was off 15.7% y/y to ¥926.2 billion as the November trade
surplus narrowed to ¥259.7 billion. Additionally, the December
economy watchers' survey current reading improved to 45.1 while the
outlook reading improved to 43.9. November machine orders and machine
tool orders data will be released overnight. U.S. dollar offers are
cited around the ¥84.60 level. The euro moved higher vis-à-vis the
yen as the single currency tested offers around the ¥108.75 level and
was supported around the ¥107.85 level. The British pound moved
higher vis-à-vis the yen as sterling tested offers around the
¥130.65 level while the Swiss franc moved higher vis-à-vis the yen
and tested offers around the ¥85.95 level. In Chinese news, the U.S.
dollar depreciated vis-à-vis the Chinese yuan today as the greenback
closed at CNY 6.6125 in the over-the-counter market, down from CNY
6.6180. The November leading economic index will be released
overnight. People's Bank of China Deputy Governor Yi Gang reiterated
"We do have confidence in European financial markets and the euro.

We will be here for a very long period of time. China has been a
long-term, stable investor in Europe." Vice Premier Li Keqiang last
week reported China will continue to purchase Spanish debt. Yi also
said China will take "into positive consideration" investment into
European financial assistance funds. PBoC today set the yuan's
reference rate at its strongest level since July 2005. Chinese
President Hu visits the U.S. next week and China is sending a
political message by allowing the yuan to appreciate now. It was
reported this week that China's foreign exchange reserves totaled
US$ 2.847 trillion at the end of 2010.

!! Pound !!
The British pound appreciated vis-à-vis the U.S. dollar today as
cable tested offers around the US$ 1.5770 level and was supported
around the US$ 1.5580 level. Technically, today's intraday high was
right around the 76.4% retracement of the $1.5295 – 1.6300 range.

Cable rocketed higher during the North American session as traders
reacted positively to Portugal's successful debt issuance. Data
released in the U.K. today saw the November total trade balance
deficit widen to -£4.123 billion. November industrial production and
manufacturing production data will be released tomorrow. Bank of
England's Monetary Policy Committee is not expected to change
monetary policy when its decision is announced on Thursday despite
ongoing elevated rates of inflation. A growing chorus of traders are
questioning the central bank's commitment to keeping inflation in
check, arguing inflation may not be below 2% in two years' time.
Cable bids are cited around the US$ 1.5265 level. The euro appreciated
vis-à-vis the British pound as the single currency tested offers
around the £0.8335 level and was supported around the £0.8300
figure.

!! Franc !!
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the
greenback tested bids around the CHF 0.9690 level and was capped
around the CHF 0.9755 level. Technically, today's intraday low was
right around the 50% retracement of the CHF 1.0070 – 0.9300 range.
December producer and import prices data will be released on Friday.

The Swiss government's Chief Economist, Aymo Brunetti, reported the
most significant risk to the Swiss economy is an "overshoot" by
the Swiss franc, adding it would "have negative effects on exports
and the economic climate." Some dealers believe Swiss National Bank
will eventually be forced to resume franc-selling intervention
activity. Data released in Switzerland this week saw November retail
sales up a real 2.5% y/y. U.S. dollar offers are cited around the CHF
0.9810 level. The euro appreciated vis-à-vis the Swiss franc as the
single currency tested offers around the CHF 1.2690 level while the
British pound moved higher vis-à-vis the Swiss franc and tested
offers around the CHF 1.5265 level.
Source: Fxstreet.com