USD slowly retraces as tempered inventory growth offsets Fed’s Hawkish rhetoric

US Dollar:

The dollar was showing a mixed performance through Tuesday and into the early hours of the Asian session that was facilitated specifically by low activity levels. Through the end of the US session, daily ranges on the majors were still exceptionally small especially when we compare them to the volatility of last week. When will we see another run with the level of consistency and intensity that the market put in for through the opening week of the year? That depends on whether or not a solid fundamental trend can develop behind the greenback and/or the financial markets themselves. What is needed is a catalyst to direct traders’ to attention to the same focal point and thereby the same trades. We may have just such a catalyst in the coming European session. And, in the meantime, the various dollar-based majors and other asset class benchmarks are position¬ing for much more prolific moves in the near future.
DATA : No major data to be released today

Pound:

The British Pound appears to have broken out of the downward trend from November as the exchange rate bounces back from a low of 1.5512, and the GBP/USD may consolidate over the next 24 hours of trading as the Bank of England is widely expected to maintain its current policy in January. The BoE is anticipated to hold the key lending rate at 0.50% while maintaining its asset purchase target at GBP 200B, but the central bank may refrain from releasing a policy statement as it maintain a neutral outlook for future policy. However, we expect to see another three-way split within the MPC as the economic outlook remains clouded with high uncertainty, and there could be a growing split within the committee as inflation continues to hold above the 2%.
Nevertheless, a report by the British Retail Consortium showed retail spending in the U.K. expanded at a slower pace in December, with sales increase 1.5% after expanding 2.8% in the previous month, and the tepid pace of economic growth could lead the central bank to maintain its wait-and-see approach throughout the first-half of 2011 as the tough austerity measures bear down on the recovery.
DATA : No major data to be released today

Euro:

A lot has happened with Europe’s financial situation between the market’s expectations and policy offi-cials’ efforts to stem the bleeding. Wavering between reassurance and fear, the net effect is that the concern has saturated the headlines and put the market on alert for big developments. It just so happens that we will have just such an event in the upcoming European trading session. Though Portugal drew discouraging interest when it taped the debt market for capital just this past week, the country is looking to raise funds once again in this mornings session. The ECB has attempted to spark secondary market demand, various policy officials have tried to talk confidence into market participants and Japan has vowed outside capital. However, none of these efforts genuinely improves the situation and the market realizes this. Therefore, volatility is a highly likely out¬come. Perhaps this is the event that can revive investor sentiment one way or the other.
DATA : No major data to be released today

General:

The indeterminate effects of Australia’s floods (Citibank estimates they could cut as A$1 billion from trade a month) is seriously weighing on growth and interest rate expectations. However, the quickly receding market-based yield forecast has leveled off today; perhaps with a little help from this morning’s lending data. While investment lending in November was down 2.3 percent, home loans rose 2.5 percent.

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