Weaker Australian PMI weighs on the AUD

O/N: Weaker Australian PMI in Dec helps push AUD lower BULLETS: China vice-premier Li commits to more Spanish bond buying
USD Another strong US ISM helped support the USD yesterday, and a weaker Australian PMI overnight also helped reduce appetite for carry positions. Tonight's FOMC minutes will be a focus, but it is unlikely the Fed has changed its tune much in a holiday shortened month.

EUR The EUR has managed to hold its ground against the USD in spite of weakness against the more solid currencies like the CHF, NOK and SEK in the last few weeks, and the message of support from China overnight may provide some cross support today, especially since the weaker Chinese PMI over the weekend and the weaker Australian PMI overnight underline the stronger US and European PMIs yesterday.
GBP Sterling has been the world's weakest currency in the last few weeks, and today's PMI offers an opportunity to recover. Although a rise is unlikely after the stronger number last month, an as expected number above 57 would emphasise that UK manufacturing remains on track, though it is the service sector that is more of a concern.

CAD A strong oil price and strong US data ought to be the perfect storm for the CAD, but it remains restricted by parity against the USD, even though it has managed to dip below. It will struggle to outperform other currencies in a weak USD environment, because of the high USD weighting in the CAD trade-weighted basket, but progress below parity against the USD is likely to be hard.
Spotlight - January effect - Based on a sample of observations since 1999, the strategy of going long SEK, CHF and NZD on January 1 and closing positions on January 31 has delivered positive returns on 8/11 occasions, the most consistent in the G10 and compared to equities, bonds and commodities. The EUR (and FTSE) brings up the rear, gaining ground only on 3 occasions and dropping in value on no less than 8 occasions (2002, 2005 and 2007). Considering the rapid rate of decline in EUR/CHF and EUR/SEK last month, one could imagine that a fair amount of SEK and CHF covering vs EUR may already have taken place, reducing the chances of SEK and CHF again coming out on top at the end of this month. However, the ongoing rise in core Euro zone CDS and negative ratings developments in Hungary pose obvious downside EUR risk that may be difficult to negate. The same applies for the NZD after the disappointing 0.2% q/q contraction in Q3 GDP and resulting collapse in shot-term Kiwi yields.

Source: ActionForex.Com