USD Takes a Breather, But is Still Poised for Further Gains

The USD weakened slightly across nearly all of the G10 today, with the CHF being the strongest performer as the SNB left their policy rate unchanged and kept the EUR/CHF floor at 1.20 – Many speculated they would raise the floor to 1.25. Better than expected data from Europe and the U.S. buoyed risk sentiment – Stronger than expected EU Manufacturing & Services Dec. PMI’s (46.9 and 48.3 vs. expected 46.0 and 47.0 respectively), EU Nov. CPI as expected 3.0% YoY, U.S. Nov. PPI rose 0.3% from -0.3% MoM, Dec. Empire manufacturing came in at 9.53 vs. consensus 3.0, weekly Initial Jobless claimed fell to 336K vs. expected 390K (lowest level since May-2008) and Philly Fed climbed to 10.3 vs. con. 5.0. After the pummeling equities saw over the past few sessions, this saw both European bourses and U.S. equities rally on the day – DAX: +0.98%, CAC: +0.76%, FTSE MIB: +1.37%, IBEX: +0.84% & the DOW: +0.38% and S&P500: +0.32%.

That said, the land of FX remained broadly range-bound today and many of the majors are currently trading near key psychological/technical levels – EUR/USD: 1.30, GBP/USD: 1.55, AUD/USD: below parity towards 0.99, USD/JPY: 0.78 and USD/CHF: 0.94. With one day left in the trading week and the lack of any significant giveback of USD gains over the past few days leads us to believe tomorrow could see further USD gains. With rumors of a large EUR/USD 1.29 option expiring tomorrow, it could make for an interesting next 24-hours of trading. You may also want to keep an eye on technical levels in Gold: $1560/64 lows over the past 48hrs and the S&P500: caught between the 50 & 100-day sma’s (1227 & 1205) as breaks lower in these markets could have spillover effects to the overall ‘risk’ trade.

There’s no top tier data scheduled for the upcoming Asia/Pacific session. As for tomorrow, the only major data announcement is November U.S. CPI (exp. 0.1% MoM).