Eur/Usd The Euro was resilient during Monday despite concerns surrounding the inconclusive Spanish election result. With no party able to secure an overall majority and major obstacles to forming a coalition, there was some speculation that a second election would be needed which could cause wider stresses within the Euro-zone. There was still evidence of shorter-term long dollar positions being reduced, although there was also some suggestion that longer-term players were looking to buy any significant retreat. There was further caution surrounding thin liquidity over the next few days which could lead to erratic currency moves. Atlanta Fed President Lockhart stated that Fed could look to raise interest rates at every other policy meeting during 2016 rather than every meeting. There were still market expectations that the Federal Reserve would not be able to sanction four further increases in the Fed funds rate next year, especially in view of the further decline in oil prices which will tend to push reported inflation lower. There were still expectations that the Fed would tighten relatively to the ECB. With no major data releases during the day, the latest Chicago Fed business activity data received some attention with a decline to -0.30 for November from -0.17 previously and the lowest reading for six months. The Euro overall pushed above the 1.0900 level and peaked near 1.0940 with choppy trading conditions surrounding the London fix. There was little change on Tuesday with quiet conditions ahead of the final Q3 US GDP data due later in the day.
Jpy The dollar was unable to make a move above the 121.50 level against the yen on Monday and dipped back to test support close to 121.00 during the New York session with a brief dip below this level. US yields moved lower during the session in thin trading conditions which curbed dollar demand to some extent. There was some recovery in the Chinese yuan which dampened expectations of immediate downward pressure on the Japanese currency and European equity markets secured limited gains which tended to curb potential yen support. There were still some expectations that the Bank of Japan would ease policy further during 2016 which curbed potential yen support. Asian equity markets were little changed on Tuesday with slight losses for the Nikkei and the dollar held above the 121.00 level in generally subdued conditions as liquidity remained low.
Gbp Sterling was unable to make any impression on the Euro during Monday, initially moving to the 0.7300 area and a move higher triggered some stop-loss Sterling selling with a two-month peak above the 0.7340 level. The UK currency was also unable to make any impression on the dollar and dipped back below 1.4900 late in the European session. The latest CBI retail sales survey recorded a reading of 19 for December from 7 previously which suggested solid retail spending. There was still speculation over a potential slowdown in UK demand which would reinforce more dovish rhetoric from the Bank of England. Consumer confidence was little changed for the December reading which had little impact. There were underlying political concerns surrounding the UK negotiations with the EU over revised membership terms. Any deal which appeared to offer little in the way of concessions could trigger damaging splits within the government. Sterling remained on the defensive on Tuesday with the latest government borrowing data due later in the session.
Chf The Euro was able to find support below 1.0800 against the franc and rallied back above 1.0800 with a generally firmer tone as the dollar found support on dips to the 0.9900 area. There was a significant increase in domestic sight deposits for the latest week which could indicate National Bank intervention, although the data is prone to weekly volatility, especially ahead of the new-year period. Intervention speculation intensified as the Euro again found support below 1.0800 with previous evidence that the bank had been in the market below this level.