By GCI Fx Research<\/p>\n
\u20ac<\/strong><\/p>\n The euro appreciated vis-\u00e0-vis the U.S. \t\tdollar today<\/strong> as the single currency tested offers around the US$ \t\t1.4580 level and was supported around the $1.4455 level.\u00a0 Traders are \t\ttrying to digest one report that suggests the Obama administration is \t\tgoing to impose a major tax on banks that borrowed funds under the \t\tTroubled Asset Relief Program.\u00a0 Another report suggests the Obama \t\tadministration is considering extending capital gains tax relief, a move \t\tthat could support the equity market.\u00a0 Data released in the U.S. today \t\tsaw MBA mortgage applications up 14.3% from the prior reading of 0.5%.\u00a0 \t\tThe Federal Reserve\u2019s Beige Book was released today and confirmed \t\timprovements in business conditions in ten of the twelve Fed districts \t\tbut noted the labour market is \u201cgenerally weak\u201d in most of the Fed \t\tdistricts.\u00a0 Data to be released in the U.S. tomorrow include the \t\tDecember import price index, December retail sales, weekly initial \t\tjobless claims, continuing claims, and November business inventories \t\tfollowed by many data on Friday including consumer price inflation, \t\tindustrial production, and more.\u00a0 Chicago Fed President Evans today \t\treported the U.S. economy may expand 3% \u00a0to 5% in 2010 and sees a \t\t\u201cstable\u201d outlook for prices.\u00a0 Philadelphia Fed President Plosser spoke \t\tovernight and hawkishly said \u201cThis increase in rates must occur well \t\tbefore the unemployment rate or other measures of resource slack have \t\tdiminished to acceptable levels.\u201d\u00a0 In eurozone news<\/strong>, German gross \t\tdomestic product growth data confirmed the economy fell 5.0% in 2009, a \t\tsharp reversal from 2008\u2019s +1.3% expansion. This represented the first \t\tcontraction in six years and the largest decline since World War II.\u00a0 \t\tFrench data released today saw the November current account gap narrow \t\tto \u20ac3.8 billion.\u00a0 European Union President Van Rompuy reported Greece\u2019s \t\tfiscal problems are a major concern the entire European Union but \t\treported the Greek government is \u201calready taking the necessary further \t\tsteps to address the situation.\u201d Euro bids are cited around the US$ \t\t1.3885 level.<\/p>\n \u00a5\/ CNY<\/strong><\/p>\n The yen depreciated \t\tvis-\u00e0-vis the U.S. dollar today<\/strong> as the greenback tested offers \t\taround the \u00a591.50 level and was supported around the \u00a590.90 level. \t\t\u00a0Today\u2019s range was relatively tight as dealers continued to focus on \t\tChina and weigh the impact of its recent policy moves on the yen.\u00a0 Data \t\treleased in Japan overnight saw December corporate bankruptcy cases off \t\t0.35% m\/m and 16.59% y\/y.\u00a0 The yen also continues to weaken a little bit \t\ton uncertainty regarding Japan Airlines, a company whose stock has \t\tdeclined to \u00a57 and could be delisted.\u00a0 Global risk aversion is also \t\tmoving lower and this is negatively impacting the yen as traders move \t\tinto higher-yielding assets.\u00a0 Japan\u2019s economic problems continue.\u00a0 \t\tFirst, bank lending continued to move lower in December, probably on \t\taccount of weakening business confidence.\u00a0 Second, Japan remains mired \t\tin a deflationary cycle that will require the central bank to maintain \t\tits ultra-easy monetary policy.\u00a0 Dealers are also paying close attention \t\tto comments from new finance minister Kan following his recent \t\tappointment and comments that moved the yen last week.\u00a0 The Nikkei 225 \t\tstock index lost 1.32% to close at \u00a510,735.03.\u00a0 U.S. dollar offers are \t\tcited around the \u00a594.75 level.\u00a0 The euro moved higher <\/strong>vis-\u00e0-vis \t\tthe yen as the single currency tested offers around the \u00a5133.05 level \t\tand was supported around the \u00a5131.50 level.\u00a0 The British pound moved \t\thigher <\/strong>vis-\u00e0-vis the yen as sterling tested bids around the \u00a5148.75 \t\tlevel while the Swiss franc moved higher <\/strong>vis-\u00e0-vis the yen and \t\ttested offers around the \u00a590.00 figure. In Chinese news<\/strong>, the U.S. \t\tdollar depreciated vis-\u00e0-vis the Chinese yuan as the greenback closed at \t\tCNY 6.8267 in the over-the-counter market, down from CNY 6.8275. \t\t\u00a0\u00a0Traders are still talking about People\u2019s Bank of China\u2019s decision to \t\tlift reserve requirements at commercial banks by 50bps from 15.50% to \t\t16.00%, effective 18 January.\u00a0 This is PBoC\u2019s most effective weapon to \t\tenact implement a contractionary monetary policy and follows a move to \t\treduce monetary accommodation last week by selling one-year bills at \t\thigher rates.\u00a0 China Investment Corporation executive Peng moved the \t\tmarkets this week when he said \u201cI think the dollar is at \t\tits bottom now. There will be very limited space for the dollar to drop \t\tfurther.\u00a0 The yen is what, I think, has the worst outlook. The yen will \t\tcontinue to drop, unlike the dollar, which will not serve for long as a \t\tsource of funding carry trades.”<\/p>\n \u20a4<\/strong><\/p>\n The British pound appreciated sharply \t\tvis-\u00e0-vis the U.S. dollar today<\/strong> as cable tested offers around the \t\tUS$ 1.6295 level and was supported around the $1.6135 level.\u00a0 Bank of \t\tEngland Monetary Policy Committee member Sentance moved the markets \t\ttoday when he said \u201cAt some point you have to say we have increased the \t\tamount of stimulus enough.\u00a0 It doesn’t mean you are going to withdraw it \t\tbut you don’t have to keep adding to it.\u00a0 The Bank is approaching the \t\tpoint where we need to hold back and wait and see how that’s flowing \t\tinto the recovery.\u201d\u00a0 Data released in the U.K. today saw November \t\tmanufacturing production flat m\/m and off 5.4% y\/y while November \t\tindustrial production was up 0.4% m\/m and off 6% y\/y.\u00a0 Cable bids are \t\tcited around the US$ 1.5730 level. The euro gained ground<\/strong> vis-\u00e0-vis the British pound as the single currency tested offers around \t\tthe \u20a40.8965 level and was supported around the \u20a40.8915 level.<\/p>\n