FX Report 23 December 2015

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EURUSD The Euro found support above the 1.0900 level on Tuesday and pushed generally higher as the dollar was unable to gain any significant traction amid short-term position adjustment which helped underpin the Euro.  The Finnish Foreign minister stated that the country should never have joined the Euro and support for being in the Euro area had fallen to 54% in the latest opinion poll. The issue on whether to hold an referendum on membership will have to be debated in parliament sometime in 2016 following a popular referendum. US final GDP data for the third quarter was revised slightly lower to 2.0% from 2.1% which was marginally above expectations and there was also an increase for the core PCE deflator to 1.4% from 1.3% which suggested a fractional increase in underlying inflation pressures. Existing home sales data was much weaker than expected with a monthly decline of over 10% to an annual rate of 4.76mn from a revised 5.32mn previously, the sharpest monthly decline for five years with some suggestion that regulation changes delayed sales completions. There was an improvement in the Richmond Fed index to 6 from -3 previously while there was a strong reading for the Philadelphia Fed non-manufacturing index which suggested a possible improvement in overall demand conditions which would provide underlying dollar support. The Euro overall pushed to highs around 1.0980 before encountering significant selling interest and dipping back below 1.0950 on Wednesday as the dollar found underlying support. There are further US data releases on Wednesday, although market positioning and energy prices are liable to dominate price action.
JPY  The dollar was already struggling to make headway during the European session and dipped lower following the US existing home sales with a test of support in the 120.75 area against the yen. The rebound in oil prices and a small move higher in US bond yields to the 2.23% area helped underpin the US currency at lower levels, especially with oil prices generally firmer.  There was speculation that the Bank of Japan could expand monetary policy again in 2016 and there was still firm dollar demand on dips given underlying fundamentals and expectations of continued monetary divergence.  Tokyo markets were closed on Wednesday which curbed activity while Asian equity markets in general were firm which curbed any yen demand. The dollar overall found resistance just above the 121.00 area with underlying position adjustment.
GBP  Sterling remained under pressure from expectations of year-end selling on Tuesday while the latest data releases providing no support. November government borrowing data was again worse than expected with a shortfall of GBP13.6bn compared with expectations of GBP11.9bn and also worse than the November 2014 data. For the first eight months of 2015, there was a reduction of GBP6.6bn compared with the previous year, but it will be increasingly difficult to meet the full fiscal-year target. Sterling was unable to make any recovery against the Euro and dipped initially retreated through 0.7350 against the Euro. During the New York session there was a break below 1.4860 against the dollar which pushed the UK currency to eightmonth lows against the US currency as the Euro hit 10-week highs around 0.7400. Final GDP and latest current account data are due on Wednesday with the balance of payments position a key focus.  There was a recovery towards 1.4850 against the dollar and 0.7370 against the Euro on Wednesday with some short covering.
CHF The Euro found support above 1.0800 against the franc on Tuesday, cushioned by the generally stronger tone on the crosses while the dollar dipped to lows around 0.9870. Although the trade account remained in strong surplus, there was a monthly decline in exports and competitiveness will remain a significant issue over the first half of 2016. The National Bank will be wary of erratic year-end moves amid a lack of liquidity and ready to intervene if necessary to curb excessive volatility and franc gains.
Regards All.
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