Daily FX Commentary, January 25, 2012

In today’s chart of the day below, USD/CAD has been consolidating since September and is poised for a breakout. Question is, which way?

USD/CAD traded higher overnight because of negative comments from the IMF’s Lagarde and weaker than expected UK GDP. The UK economy shrank by 0.2% in the 4th quarter of 2011, after a rise of 0.6% in the previous quarter, edging it towards recession. This prompted the Bank of England Governor Mervyn King to say that slowing inflation gives room for further bond purchases, which will help to prevent the economy from falling into a "renewed severe downturn."
 
Japan has announced its first trade deficit in 30 years, this contrasts their history of being one of the world’s largest exporters of cars and electronics. Most of this swing can be directly attributed to the tsunami disaster back in March, as Japanese infrastructure continues to be rebuilt and exporters struggle with a rising JPY and damaged manufacturing facilities.
 
The Australian dollar rose after inflation there came in unexpectedly higher lowering the chances of an expected rate cut. It has since come off to trade below 1.05 against the USD.
 
The ECB has reiterated that it remains opposed to any restructuring of its Greek bond holdings as the debt was required for monetary policy purposes. This was in response to pressure for it to join the private-sector investors in taking a haircut on their holdings.
 
Today’s market highlight will be the first time that the FOMC releases its own forecasts for the benchmark interest rate.
 
And in case anyone missed it last night President Obama is in fact running for reelection.
 

“As a nuclear power—as the only nuclear power to have used a nuclear weapon— the United States has a moral responsibility to act.”

Barack Obama