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OctaFX.Com - Forex News: Euro Fails to Hold 1.31 As Spanish Bond Auction Misses Target

Despite the failure to reach a final agreement on a joint banking supervisor in yesterday’s meeting of European finance ministers, the Euro still climbed higher in yesterday’s session and rose above 1.3100 in the first part of today’s trading. Risk sentiment seems to be higher as the move was mimicked by other risk-correlated currencies, and European equities opened higher in today’s trading. Part of the optimism may come from Asian markets, where the Shanghai Composite index climbed nearly 3% in today’s trading, following an announcement that economic policies will be kept stable in China.

There were only a few economic releases in today’s European session. The 10th straight decline in Euro-zone composite output was not as bad as initially estimated, and the rise in UK services activity disappointed expectations.

The bigger decline came when sales of Spanish 3, 7, and 10-year bonds disappointed a maximum target of 4.5 billion Euros by only raising 4.25 billion in the auction. Then, Euro-zone retail sales were reported to have declined 1.2% in October, the disappointing number kept EURUSD below 1.3100.

The Euro is currently trading at about 1.3085 against the US Dollar in forex markets. Resistance could be provided by a 2-month high at 1.3139, and support could be provided at 1.3026, by the 76.4% retracement of the drop from October’s high to November’s low.

Tomorrow could see a lot of movement in Euro trading. The ECB will announce the interest rate at 12:45 GMT, expectations are for the rate to be left at 0.75%. Also, an updated estimate of the Euro-zone GDP for Q3 will be released, the previous estimate saw a 0.1% decline.

EURUSD Daily: December 5, 2012

Dec 5, 2012

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[OctaFX_Farid]

OctaFx -ECB cuts growth outlook for eurozone, holds rates

European Central Bank cuts growth outlook for eurozone, leaves interest rates unchanged

FRANKFURT, Germany (AP) -- The European Central Bank underlined the gloomy prospects for the economy of the 17 European Union countries that use the euro, cutting its forecast for growth next year to minus 0.3 percent from plus 0.5 percent.

Even so, the bank left rates unchanged at its meeting Thursday, and ECB head Mario Draghi gave little sign the bank was willing to add more stimulus. He said the bank had already done much to lower borrowing costs in heavily indebted countries that are struggling to grow.

The bank's 22-member governing council kept the refinancing rate unchanged at 0.75 percent. The rate determines what private-sector banks are charged for borrowing from the ECB, and through that what rate the banks set for their businesses and consumer clients.

Draghi said current rates were "very accomodative" — meaning they are low enough to encourage growth. He also said that the ECB had already effectively lowered some interest rates with its plan announced in September to buy the bonds of indebted countries.

That plan — which would drive down borrowing costs for indebted governments that ask for help — had already led to drop of as much as 2 or 2 ½ percentage points in some countries borrowing costs, just on anticipation by bond investors.

"That is much more than you can achieve by a cut in the policy rate," Draghi said.

The eurozone's economy is in recession, having shrunk 0.1 percent in the third quarter after a 0.2 percent fall in the previous three months. A recession is often defined as two quarters of negative growth in a row. It is expected to contract again in the last three months of the year.

Draghi said the slump would continue into next year, with a gradual recovery later in 2013. The bank's minus 0.3 percent outlook is the midpoint of the forecast rate of between minus 0.9 percent and plus 0.3 percent.

Growth is being held back across the eurozone as governments slash spending and raise taxes to try to reduce levels of debt piled up from overspending in the case of Greece or real estate bubbles and banking crises in Spain and Ireland. Greece, Portugal, Ireland and tiny Cyprus have already needed bailouts, while Italy and Spain, the eurozone's third- and fourth-largest economies, teetered on the edge of needing help this summer.

A rate reduction in theory could stimulate the eurozone's economy by making it easier to borrow, spend and invest. But rates are already low, and borrowing remains weak. There are only a few early signs that previous rate cuts and stimulus measures are finally trickling through to the wider economy.

Draghi said that there had been a "wide discussion" on interest rates but that "in the end the consensus was to leave rates unchanged." Use of the term "consensus" suggests the council was not unanimous, but many analysts think the ECB could leave rates alone well into next year and might be done cutting.

Some analysts think the bank may now consider it has done enough to help the economy after a year of drastic measures. The most important was an offer in September to buy unlimited amounts of bonds issued by of Europe's heavily indebted countries. It also made €1 trillion ($1.3 trillion) in cheap, long-term loans to stabilize shaky banks last December and February, and cut rates a quarter point in July.

The bond purchase plan announced in September has helped stabilize the eurozone debt crisis. The purchases would aim to drive down bond interest rates, which would lower borrowing costs for indebted countries such as Spain and Italy and make it easier for them to manage their debt loads.

Although no bonds have been bought, the mere possibility has influenced the bond market. The interest yield on Spanish 10-year bonds is down to around 5.4 percent now, from 7.6 percent in July. Italy's costs to borrow for 10 years are now down to 4.4 percent, down from over 7 percent at the start of the year and close to the country's average for the past decade, But while governments are breathing easier, that hasn't restarted growth.

The ECB has tried to make sure that its crisis efforts are making it through to the eurozone's wider economy — but it is taking time to be felt and fear and reluctance remain. While some business confidence indicators are beginning to rise and the supply of money in the economy is increasing, consumer spending sagged 1.2 percent in October.

Dec 6, 2012

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[OctaFX_Farid]

OctaFX.Com - FOREX Technical Analysis: NZD/USD Slams into Short Term Channel and Reverses

Chart Prepared by Jamie Saettele, CMT

FOREXAnalysis: “Bigger picture, the NZDUSD appears quite bullish as the decline from 8355 is in 3 waves (corrective) and the rally from 8052 is in 5 waves. The question at this point is whether the decline from 8267 is complete or simply part of a larger correction that ends below 8170 and closer to the estimated 8125/35 support.”

The NZDUSD has headed straight up since 8170. Given the reaction at channel resistance today, there is the possibility that the advance from 8052 composes wave B of a triangle or flat that began on 9/28. That scenario is not viewed as probable as long as price is above 8170 however. A Fibonacci confluence and August 2011 high intersects with a channel at the end of December.

FOREXTrading Strategy: Weakness into 8240 would be worthy of bullish consideration against 8170.

Dec 7, 2012

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[OctaFX_Farid]

OctaFX.Com -Forex Analysis: British Pound Outlook Supported By BoE Policy- 1.6200 Remains Key

The British Pound continued to retrace the decline from back in September as the Bank of England (BoE) maintained its current policy stance in December, and the short-term rebound in the GBPUSD may gather pace over the remainder of the year as the central bank appears to be slowly moving away from its easing cycle.

Beyond the headline reading for U.K. Jobless Claims, which is expected to increase another 7.0K in November, we’re expecting to see average weekly earnings including bonuses increased for the third month in October, and another uptick in wage growth may become a growing concern for the Monetary Policy Committee (MPC) as inflation is expected to hold above the 2% target over the next two-years.

Indeed, the BoE kept the benchmark interest rate at 0.50% and maintains its asset purchase program at GBP 375B, and we may see the central bank adopt a more hawkish tone for monetary policy as the U.K. emerges from the double-dip recession. Former MPC dove Adam Posen argued that the central bank is ‘going to be on hold indefinitely’ as the central bank turns its attention to the stickiness in inflation, and the BoE may shift gears in the following year as it aims to preserve price stability.

Although the deepening recession in the Euro Zone – the U.K.’s largest trading partner – casts a weakened outlook for growth, we’ve seem consumer price growth hold above target since November 2009, and the committee may look to address the threat for inflation in an effort to preserve its credibility. As a BoE survey shows inflation expectations for the next 12-months increasing an annualized 3.5% following the 3.2% expansion in August, heightening price pressures in the U.K. should continue to prop up the British Pound as it pushes the BoE to scale back its willingness to expand its balance sheet further.

As the relative strength index on the GBPUSD struggles to maintain the upward trend carried over from the previous month, the pound-dollar may continue to consolidate ahead of the BoE Minutes due out on December 19, and the exchange rate may continue to bounce between 1.6000-1.6100 as market participants weigh the outlook for monetary policy.

Nevertheless, as the shift in the policy outlook fosters a bullish forecast for the British Pound, the rebound from 1.5822 may continue to gather pace over the near-term, but we would need a more meaningful move above 1.6200 – the 23.6% Fibonacci retracement from the 2009 low to high – to see the pair breakout of the downward trend carried over from 2011.

Dec 8, 2012

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[OctaFX_Farid]

OctaFX.Com -Forex Analysis: British Pound Outlook Supported By BoE Policy- 1.6200 Remains Key

The British Pound continued to retrace the decline from back in September as the Bank of England (BoE) maintained its current policy stance in December, and the short-term rebound in the GBPUSD may gather pace over the remainder of the year as the central bank appears to be slowly moving away from its easing cycle.

Beyond the headline reading for U.K. Jobless Claims, which is expected to increase another 7.0K in November, we’re expecting to see average weekly earnings including bonuses increased for the third month in October, and another uptick in wage growth may become a growing concern for the Monetary Policy Committee (MPC) as inflation is expected to hold above the 2% target over the next two-years.

Indeed, the BoE kept the benchmark interest rate at 0.50% and maintains its asset purchase program at GBP 375B, and we may see the central bank adopt a more hawkish tone for monetary policy as the U.K. emerges from the double-dip recession. Former MPC dove Adam Posen argued that the central bank is ‘going to be on hold indefinitely’ as the central bank turns its attention to the stickiness in inflation, and the BoE may shift gears in the following year as it aims to preserve price stability.

Although the deepening recession in the Euro Zone – the U.K.’s largest trading partner – casts a weakened outlook for growth, we’ve seem consumer price growth hold above target since November 2009, and the committee may look to address the threat for inflation in an effort to preserve its credibility. As a BoE survey shows inflation expectations for the next 12-months increasing an annualized 3.5% following the 3.2% expansion in August, heightening price pressures in the U.K. should continue to prop up the British Pound as it pushes the BoE to scale back its willingness to expand its balance sheet further.

As the relative strength index on the GBPUSD struggles to maintain the upward trend carried over from the previous month, the pound-dollar may continue to consolidate ahead of the BoE Minutes due out on December 19, and the exchange rate may continue to bounce between 1.6000-1.6100 as market participants weigh the outlook for monetary policy.

Nevertheless, as the shift in the policy outlook fosters a bullish forecast for the British Pound, the rebound from 1.5822 may continue to gather pace over the near-term, but we would need a more meaningful move above 1.6200 – the 23.6% Fibonacci retracement from the 2009 low to high – to see the pair breakout of the downward trend carried over from 2011.

Dec 8, 2012

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[OctaFX_Farid]

OctaFX.Com -Forex Analysis: Euro Jolted by ECB Rate Cut Rumors – Data Offers Little Clarity

The Euro was one of the worst performing currencies this week, losing -0.46% to the US Dollar and -1.93% to the top New Zealand Dollar, as an interesting mix of data and commentary from central bankers and politicians allowed for an odd week of trading, with weakness in equity market and European peripheral bonds (rising yields), while strength in high beta currencies such as the Australian and New Zealand Dollars.

The Euro was looking strong in the early part of the week, rising back above 1.3100 against the US Dollar as progress on the US fiscal cliff/slope soothed near-term investors’ anxiety. But by mid-week, the Euro’s fortunes were very much changed.

With an inconclusive docket for the coming week, with a decision on Greece’s aid tranche on Thursday, with Spain beginning to flirt with a bailout request, and with the European Central Bank’s policy meeting results all likely to influence the 17-nation single currency, we must maintain a “neutral” bias on the Euro.

To review: Spain has officially requested bailout funds for its banking sector. There were also rumors that Spain would seek a full sovereign bailout if the ECB would be willing to keep its longer-term yields within 2% of Germany’s. Obviously, this would not happen; ECB President Mario Draghi said on Thursday that the market has to find its own “natural” rates within reason; this in and of itself is a direct refutation of the Spanish request.

This means that not only is the ECB on hold (no further rate cuts), but nothing else will be done until Spain takes the ECB’s conditions; the tail will not wag the dog.

The region could use looser monetary conditions, with Germany starting to see weaker growth; yet any additional measures will likely result in higher inflation in the core countries as well as sovereign moral hazard. We don’t see a rate change at present time, even though Bloomberg News reported that most ECB policymakers favored a 25-bps rate cut on Thursday.

Additionally, the European Union will deliver its final decision on the Greek aid tranche this Thursday, at which we expect a full dispersion to take place, or a planned release of funds in the future. Primarily, it is highly unlikely German Chancellor Angela Merkel allows Greece to leave the Euro-zone and allow a failure on her record (the beginning of the break-up of the Euro-zone) ahead of elections in just a few months. It would be very surprising if Greece does not receive the aid.

The data picture the coming week is neutral to bullish for the Euro, which could help some of these other negative pressures present. On Monday, the December Euro-zone Sentix Investor Confidence reading is expected to have increased to -16.9 from -18.8. On Tuesday, the German ZEW Survey will show improvement in both the Current Situation and Economic Sentiment readings, which should ease 4Q’12 concerns about German growth.

The Euro-zone Consumer Price Index this Friday draws our attention. Inflation is expected at -0.2% m/m in November, down from the +0.2% m/m reading in October. The yearly figure is expected at +2.2% from +2.5% y/y previously. These figures suggest aggregate demand in the Euro-zone is falling, a view shared by the ECB on Thursday. If deflation takes hold, a rate cut becomes a very real possibility in 1Q’ or 2Q’12.

There are many different factors weighing on the Euro right now; while they’re mostly negative, positive outcomes remain possible. Accordingly, with data poised to offset concerns over Spain and the ECB over the coming week, we must give the Euro a “neutral” rating going forward; when risk-appetite is prevalent, the Euro could trail the winners; and when risk-aversion is prevalent, the Euro could lead the decliners

Dec 8, 2012

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[OctaFX_Farid]

OctaFx - Greece received 26.5 billion euros in buyback bids by end-Friday

BRUSSELS (Reuters) - Greece received a total of 26.5 billion euros ($34.3 billion) in offers for its debt buyback at the close of business on December 7, a senior euro zone official told Reuters on Monday.

The official said the price was 33.4 percent.

Greece has extended its offer to buy back debt until Tuesday, seeking more bids from bondholders after falling just short of a target to retire bonds worth 30 billion euros at a cost of just 10 billion euros.

The buyback is designed to provide for about half of a 40-billion euro debt relief package for Athens agreed last month by the European Union and International Monetary Fund.

The offer had been due to end on Friday. The Greek debt agency extended the offer to 7 a.m. EDT on Tuesday.

"We are confident that there is still scope for additional tenders by domestic and international investors to ensure a successful debt buyback," European Commission spokesman Simon O'Connor told a regular briefing in Brussels.

Euro zone finance ministers will meet on Thursday in Brussels to review the buyback operation and formally release the next disbursement of loans to Greece under its second international rescue program.

Dec 10, 2012

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[OctaFX_Farid]

OctaFx - Greece extends buyback offer to reach 30 billion-euro target

ATHENS/BRUSSELS (Reuters) - Greece extended its offer to buy back debt until Tuesday, seeking more bids from bondholders after falling short of a target to retire bonds worth 30 billion euros at a cost of just 10 billion euros.

The buyback is designed to provide for about half of a 40-billion euro debt relief package for Athens agreed last month by the European Union and International Monetary Fund.

Its success is crucial to ensuring Greece's debt is put back on sustainable footing and - more immediately - to unlocking badly-needed aid for the country.

Despite the initial lack of investor interest, the scheme is expected to ultimately hit its targets since Greek banks - whose own fate depends on a successful buyback - are expected to stump up the shortfall.

A total of 26.5 billion euros was tendered at an average price of 33.4 percent of face value when the offer expired on Friday, a senior euro zone official told Reuters.

That would mean Greece would still have 1.15 billion euros left over from the 10 billion euros it was allotted to spend to retire outstanding debt. Assuming the same average price, it could buy an extra 3.5 billion euros worth of bonds.

Greece's debt agency extended the offer to 7 a.m. EDT on Tuesday following Friday's deadline.

"The aim is to reach the 30 billion euro target on the face value of debt to be bought back," said a government official, who declined to be named, adding the aim was to use all of the 10 billion euros given by lenders for the buyback.

Euro zone finance ministers will meet on Thursday in Brussels to review the buyback operation and formally release the next disbursement of loans to Greece under its second international rescue program.

"We are confident that there is still scope for additional tenders by domestic and international investors to ensure a successful debt buyback," European Commission spokesman Simon O'Connor told a regular briefing in Brussels.

"EASILY COVERED"

A senior Greek banker who spoke on condition of anonymity said Athens aimed to use the additional day to get another 3 to 4 billion euros worth of bonds offered for exchange.

"This will be easily covered by Greek banks, if foreign bondholders do not offer more," the banker told Reuters.

Greek banks and insurers had tendered about 10 billion euros of bonds out of their total holdings of about 17 billion euros, the banker said. Nearly 63 billion euros of Greek debt held by private investors was eligible for the buyback.

Shortly before the previous Friday deadline expired, Greek banks got board approvals to offer as much as 100 percent of their bondholdings to make the buyback work.

Athens had offered better-than-expected terms for the buyback to entice investors, with price ranges at a premium over market prices.

But Greek lenders had been reluctant to sell back to the government all of their bondholdings, trying to limit the future profits and interest income on their bonds they will forego.

However, they are expected to step up now to ensure a successful buyback since they depend on the bailout funds that Athens stands to receive once it is completed. A big chunk of the 34.4 billion euros of aid due will be used to recapitalize them.

Athens badly needs the aid to revive its ailing economy, which is on track for a sixth year of recession due to austerity measures including spending cuts and tax hikes.

The EU and the IMF have been withholding rescue payments to Greece for six months because it had failed on pledges to shore up its finances, privatize and make its economy more competitive.

Greece and its international lenders had shied away from setting a binding target for the buyback, apart from saying that Athens would spend a maximum of 10 billion euros on it.

Under the scheme, Greece was expected to spend that amount to repurchase 30 billion euros of debt, shaving it by a net 20 billion euros. That would help slash Greece's debt to 124 percent of GDP by 2020, ensuring that the IMF stays on board in the country's rescue.

Greece set December 18 as the settlement date for offers on the 20 series of outstanding bonds it is buying back.

Athens' debt agency chief urged investors to tender their holdings, warning a similar deal may not come again.

"Future measures may not involve an opportunity to exit investments ... at the levels offered for this buyback," PDMA Chief Stelios Papadopoulos said in a statement.

Dec 10, 2012

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[OctaFX_Farid]

OctaFx.com - Forex Analysis: Euro May Look Past Disappointing German ZEW Data

The Euro is likely to look past what could be a disappointing outcome on Germany’s ZEW investor confidence gauge before this week’s EU leaders’ summit.

Talking Points

• German ZEW May Surprise Lower But Euro Follow-Through Unlikely
  
• US Dollar May Rise as S&P 500 Futures Point to Risk-Averse Mood
  

December’s German ZEW Survey of investor confidence is in focus on the European economic calendar. Forecasts suggest the forward-looking Expectations index will continue to moderate, showing sentiment remains net negative but by a smaller margin. The gauge has closely tracked Italian bond yields, suggesting the evolution of the Eurozone debt crisis is the key trend-setter.

Rates on the benchmark Italian 10-year debt have edged higher this month, pointing to a pickup in funding stress and warning the ZEW reading may fall short of expectations. While this may put near-term downward pressure on the Euro, follow-through is likely to prove limited. Indeed, yields themselves are a far timelier indicator of investors’ confidence in Eurozone crisis containment efforts than the ZEW reading. Furthermore, traders are unlikely to commit to a firm directional bias until the outcome of this week’s EU Leaders’ summit.

On the sentiment front, S&P 500 futures are pointing lower, arguing for a risk-off mood heading into European trading hours and hinting the safety-linked US Dollar may have scope to advance against most of its top counterparts. Trading was muted in the overnight session, with the major currencies locked in narrow consolidation ranges.

Dec 11, 2012

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[OctaFX_Farid]

OctaFx - Forex Analysis: US Dollar, S&P 500 Charts Warn of Risk Aversion Ahead

THE TAKEAWAY: US Dollar and S&P 500 technical positioning hints the greenback is aiming to reverse higher on the back of haven demand as the equity benchmark turns downward.

US DOLLAR TECHNICAL ANALYSIS– Prices are resting at rising trend line support set from the mid-September bottom, with the outlines of a Flag chart formation hinting at bullish continuation. A Piercing Line candlestick pattern reinforces the case for an upside scenario. A break above Flag resistance at 9976 initially exposes the 23.6% Fibonacci expansion at 9995. Alternatively, a drop below the trend line (now at 9942) targets the Flag bottom at 9895.

Read more

Dec 12, 2012

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[OctaFX_Farid]

OctaFx - Forex Analysis: Forex Analysis: US Dollar Classic Technical Report 12.12.2012

Prices are resting at rising trend line support set from the mid-September bottom, with the outlines of a Flag chart formation hinting at bullish continuation. A Piercing Line candlestick pattern reinforces the case for an upside scenario.

A break above Flag resistance at 9976 initially exposes the 23.6% Fibonacci expansion at 9995. Alternatively, a drop below the trend line (now at 9942) targets the Flag bottom at 9895.

Dec 12, 2012

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[OctaFX_Farid]

Check out OctaFx-Financial News: CLICK HERE

Dec 13, 2012

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Edited December 13, 2012 by OctaFX_Farid

[OctaFX_Farid]

OctaFX.Com - ECB: 'Tangible easing' of crisis, risks remain

European Central Bank: strains on eurozone banks, markets have eased but much remains to do

FRANKFURT, Germany (AP) -- The European Central Bank says there has been a "tangible easing" of stress on banks and markets from the eurozone debt crisis.

It says risks remain, however, particularly if governments slow down their efforts to cut debt and deficits and improve growth.

The bank is crediting its plan to buy the bonds of heavily indebted countries, which would lower their borrowing costs. European Union efforts to establish stronger banking oversight helped too, the bank said Friday.

The bond purchase plan has seen borrowing rates fall for troubled countries such as Spain and Italy, even though no bonds have been bought.

The ECB warned that the banking system across the 17 countries that use the euro remains fragmented, with borrowing costs higher in troubled countries than in others.

Dec 14, 2012

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[OctaFX_Farid]

OctaFX.Com - Forex: Euro Struggles On Deepening Recession- ECB Rate Cut On Horizon

Talking Points

• Euro: 3Q Employment Falters, Core Inflation Falls Short Of Expectations
  
• British Pound: U.K. Core Inflation To Tick Higher, All Eyes On BoE Minutes
  
• U.S. Dollar: Index Pares Losses As Risk Appetite Subsides, CPI Misses Forecast
  

Euro: 3Q Employment Falters, Core Inflation Falls Short Of Expectations

The EURUSD pared the overnight advance to 1.3118 as employment in the euro-area contracted 0.2% in the third-quarter, and the ongoing weakness in the labor market may produce a prolonged recession in Europe as the jobless rate is expected to hit fresh record-highs in 2013.

Although the headline reading for euro-area inflation held steady at 2.2% in November, the core reading for consumer prices increased 1.4% during the same period to mark the slowest pace of growth since August 2011, and easing price pressures certainly raises the scope for another rate from the European Central Bank (ECB)as the economic downturn threatens price stability.

As the ECB preserves a dovish tone for monetary policy, we should see the Governing Council carry its easing cycle into the following year, and the Governing Council looks poised to push the benchmark interest rate to a fresh record-low in an effort to stem the downside risks for growth and inflation.

As the EURUSD continues to carve a lower top around the 38.2% Fibonacci retracement from the 2009 high to the 2010 low (1.3120), we may see a short-term reversal take shape in the week ahead, and we will look for a move back towards the 23.6% retracement around 1.2640-50 as the fundamental outlook for the euro-area remains bleak.

British Pound: U.K. Core Inflation To Tick Higher, All Eyes On BoE Minutes

The British Pound fell back from 1.6142 to trade within the previous day’s range, and the sterling appears to be coiling up for a move higher as the economic docket for the following week is expected to dampen bets for more monetary support.

Although the headline reading for U.K. inflation is expected to hold steady at 2.7%, we’re anticipating a small uptick in the core CPI, and sticky price growth may prop up the sterling ahead of the Bank of England (BoE) Minutes due out on December 19 as the central bank drops its dovish tone for monetary policy.

Indeed, the policy statement may reveal a shift in policy outlook as the BoE looks to address the threat for inflation, and we should see the Monetary Policy Committee (MPC) slowly move away from its easing cycle as price growth is expected to hold above the 2% target over the next two-years. In turn, we should see the MPC endorse a wait-and-see approach in 2013, and a growing number of BoE officials may start to draw up a tentative exit strategy in the year ahead in an effort to balance the risks surrounding the U.K. economy.

As the relative strength index on the GBPUPSD preserves the upward trend from November, we continue to look for another test of the 23.6% Fib from the 2009 low to high around 1.6200, and we may see the British Pound outperform in 2013 as the BoE appears to be bringing its easing cycle to an end.

U.S. Dollar: Index Pares Losses As Risk Appetite Subsides, CPI Misses Forecast

The greenback appears to be regaining its footing going into the North American trade, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) bouncing back from a low 9,951, and the reserve currency may track higher throughout the remainder of the day as the rebound in risk sentiment appears to be tapering off.

Nevertheless, we saw U.S. consumer prices slow for the first time since May, led by lower energy costs, and easing price pressures dampens the appeal of the greenback as it increases the Fed’s scope to expand its balance sheet further. As the central bank maintains a highly accommodative policy stance, speculation for more easing will continue to drag on the exchange rate, but we may6 see the 2013 Federal Open Market Committee (FOMC) scale back their dovish tone amid the more broad-based recovery in the world’s largest economy.

Dec 14, 2012

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[OctaFX_Farid]

OctaFX.Com - Forex: EUR/USD Just Below 1.3200 Without Major Threats…Or Catalysts

EUR/USD Just Below 1.3200 Without Major Threats…Or Catalysts

• Fundamental Forecast for the Euro: Bearish
  
• European Union approves Greece’s next round of aid after bond buyback program
  
• Portugal asks for ‘equal treatment’ for bailout terms
  
• EURUSD’s reversals is showing greater technical strength
  

The euro’s strength was robust and broadly distributed this past week. A combination of general (though modest) improvement in economic data, the loose adoption of an EU bank supervisor and the long-awaited approval for Greece’s aid distribution generated enough optimism to lift the currency against all of its counterparts.

It’s performance ranged between the barely changed EURCHF (laden by regional capital flows) and the impressive 3.0 percent surge from EURJPY (helped out by an exceptionally weak yen). Helped along by a positive bearing on global investor sentiment, the Euro has leverage fundamentals to remarkable effect. Yet after the aggressive rally to multi-month and multi-year highs, we find that the burden for follow through has risen substantially – just we’ve run out of big-ticket catalysts.

It has taken a tremendous amount of lift to drive the euro to the heights that it scaled last week. Most prominent is the EURUSD which has risen to test the highs set in March along with the 38.2 percent Fibonacci retracement of its 2011-to-2012 bear trend at 1.3150. While the benchmark pair has officially marked its highest intraday level and daily close in over seven months, it hasn’t fully cleared the next stage to extend its bull run into a systemic trend.

This technical view is a fitting reflection of the fundamental and market conditions that the FX market faces moving forward.

To assess our next move, we should first appreciate what it took to wrench the euro to the heights it currently finds itself at. There were a series of economic releases this past week that could at best be described as ‘better-than-expected’. The bulk of the currency’s move was founded on relief. The risk that Greece could either default or exit the Eurozone (or both) tapped into an elemental fear of over the inviolability of the economic collective and its currency. Slowly, however, that threat has abated. The shift began back in July after an EU Summit laid out programs to support struggling members. When the ECB announced a potentially unlimited safety net in its OMT program, the pressure on the euro further eased. This past week, the approval of Greece’s next round of aid was the next step. After an initial short-fall on the bond buyback program, the market saw that the country would meet the target necessary to trigger support as the week wore on. By Thursday, the EU announced an immediate dispersal of €34.3 billion and monthly payouts afterwards.

Delivering aid to Greece removes the euro out of immediate peril, but it is interesting to note that the currency barely advanced after the news.

The market had priced in this outcome well before hand as the alternative would have been politically unpalatable. Yet, now we have found the relief the market had priced in before hand and bought Greece a number of months of calm before another serious shock could show up. Risk has been removed. Shouldn’t the euro be wide open to rally now? Not necessarily. While Greece may no longer be an immediate threat, there really isn’t a convincing argument of strength to be made for bidding the euro. What we have seen from July was in essence a series of relief rallies spurred on by the anticipation of and reaction to stabilizing policy. And, we have run out of catalysts…

In trader parlance, we have ‘reduced the tail risk’ – or as policy officials say, “there is no longer a crisis of confidence in the euro’. Yet, that isn’t a standalone reason to be bullish. Investors are not naïve enough to believe that this one approval will secure Greece or the Eurozone for good. What’s more, neglected concerns may start to come back to the forefront. Spain’s funding issues are national, regional and banking sector-wide; and there has been little genuine progress made beyond a fortunate easing of bond yields. An election in Italy highlights the country’s debt load.

Ireland will release 3Q GDP next week to remind us of the underlying economic issues are. And, perhaps most concerning of all, Portugal has built up a call for ‘equal treatment’ – access to the ‘one-off’ same accommodation as Greece.

Dec 15, 2012

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OctaFX.Com - Forex: British Pound to Steady Amid Mixed CPI, BoE Minutes

Fundamental Forecast for British Pound: Neutral

• - British Pound Sees Risk Reversal Near High
  
• - British Pound Outlook Supported by BoE Policy
  
• - USD Maintains Broader Trend Despite Fed Easing – GBP Eyes 1.6200
  

The British Pound had a decent week, finishing -0.98% lower against the top Euro, while climbing nearly as high against the US Dollar by +0.83%, as data was mixed overall, providing neither a cause for rally or relief by the world’s oldest currency.

Data was thin overall, with the November labor market readings representing the only significant event risk to the Sterling this week. Fortunately for the Sterling, the data came in mostly better than expected, with Jobless Claims dropping by -3.0K versus +7.0K expected, although Weekly Earnings disappointed suggesting that consumption could drop in the future. But our main attention is drawn to a future Bank of England governor, which when combined with the near-term fundamental backdrop necessarily suggests a “neutral” rating for the British Pound for the coming five days.

Primarily, the overarching theme that the British Pound will face in the weeks and months ahead will be a dismal growth picture marked by both high inflation and high unemployment, while inflation is expected to “overshoot” BoE targets over the coming years. Overall, this maintains our view that stagnation has set itself upon the UK economy; a symptom hard to rid one’s economy of, unless both fiscal policy and monetary policy makers move in lockstep. The stage has been set by Chancellor of the

Exchequer George Osborne: the UK will remain on the austerity path for at least another year.

Accordingly, the big news this week, or rather, big news for those reading between the lines of central bankers’ speeches, was that incoming BoE Governor and current Bank of Canada Governor Mark Carney suggested that a nominal GDP targeted stimulus package would be appropriate for those central banks whose policies are operating at the zero bound of interest rates. Or, that if a central bank had already cut its key rates towards 0.00%, it could pursue a policy that would promise additional stimulus until a predetermined level of growth is reached; for example, the BoE could pledge an Asset Purchase Program expansion of £10B/month until annualized GDP hit +3.0%.

Considering that the UK economy isn’t likely to see a growth figure above +2.0% annualized until late-2014 at the earliest, a nominal GDP target could be a heavy albatross around the British Pound’s neck if adopted when Governor Carney takes over in July 2013.

For now, as this is priced in over the coming months, we expect it to slowly erode yields and thus undermine the Sterling. But for this week, considering that holiday trading conditions are around the corner, we doubt that it will pose much of a significant threat; rather, it will be a growing conversation piece. Data this week isn’t enchanting itself, with the November Consumer Price Index report on Tuesday and the BoE Minutes on Wednesday.Also due are the November Retail Sales on Thursday and the final 3Q’12 GDP reading on Friday.

Of the expected data, the November CPI might be the least informative print of the year, with a huge disparity between the monthly and yearly readings. The BoE Minutes should underscore the notion that the BoE is willing to do more QE, but has chosen to remain on the sidelines for now.

At the end of the week, the November Retail Sales offer a strong opportunity to see some upside in the Sterling, given the forecasts for a solid beat, while the final 3Q’12 GDP figure holding steady shouldn’t stoke much volatility. In sum, we are neither impressed nor disappointed with what the economic docket offers for the British Pound this week, leaving our bias at neutral, while expecting another middle of the road performance.

Dec 15, 2012

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OctaFX.Com -Forex Analysis: EUR/USD Classic Technical Report 12.18.2012

Prices broke above resistance at the top of a falling channel set from mid-September, a barrier reinforced by the 38.2% Fibonacci expansion at 1.3090. The pair is now testing the September 14 high at 1.3168, with a break above that aiming for the 50% level at 1.3222.

A Spinning Top candlestick coupled with negative RSI divergence of a pullback ahead however. The 1.3090 has been recast as support, with a push below that exposing the 23.6% Fib at 1.2924.

Dec 18, 2012

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OctaFX.Com - Forex News: Risk Appetite Sends Euro and Sterling to New Highs

A risk-on attitude seems to have grasped the markets over the past 24-hours and the influence can be clearly seen in currency trading, as the risk-correlated Euro and sterling set new highs. Signs of risk appetite could be seen in equity trading, as the S&P climbed 1.15% in yesterday’s trading, and today European equities are showing decisive gains across the board.

The Euro set new 7-month highs in today’s European session, most of the gains came shortly after the better than expected IFO German business sentiment survey. However, the reaction was delayed and may have been more of a reaction to general risk appetites.

The rise in Euro happened at the same time a sudden rise in Greek bond prices led to what has so far been a 64 basis point drop in today’s trading. The rise in Greek bond prices follows the overnight S&P upgrade to Greek bond ratings. Greece’s sovereignty rating is now at B- with a stable outlook, up from a selective default rating.

The British Pound set a new 3-month high against the US Dollar in today’s session following the release of the BoE minutes, which said that the vote to not raise asset purchases was 8-1. The yearly GBPUSD high currently sits at 1.63009.

Also in today’s session, ECB’s Praet told the publication Le Firago that the threat of exits from the Euro has vanished. He also said that France needs to reform before the market attacks, as public spending is still too high.

Outside of Europe, Japan PM Elect Abe said that monetary policy is not enough to beat deflation or correct a strong Yen. In New Zealand, Finance Minister English said that the country doesn’t have the tools to move its currency to a certain level. The New Zealand gross domestic product is set to be released later today.

EURUSD is currently trading around 1.3270, and the pair could find resistance at a previous high of 1.3284. Support could be provided by a previous resistance around 1.3154.

EURUSD Daily: December 19, 2012

Dec 19, 2012

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OctaFX.Com -Forex Analysis: US Dollar Classic Technical Report 12.20.2012

Prices staged a mild recovery from neckline support established from late October (now at 9927) to retest trend line support-turned-resistance at 9956. A break above that aims for the 23.6% Fibonacci expansion at 9995. Alternatively, a drop below neckline support eyes the channel bottom at 9866.

Dec 20, 2012

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OctaFX.Com -Forex Analysis: NZD/USD Classic Technical Report 12.20.2012

Prices are moving lower as expected after putting in a Harami candlestick pattern below resistance at 0.8470, the February 29 high. Near-term support is in the 0.8317-55 area, with a drop below that exposing the rising channel support at 0.8175.Alternatively, a reversal above resistance targets the channel top at 0.8558.

Dec 20, 2012

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OctaFX.Com -Forex Analysis. Dollar Traders Watch EUR/USD, AUD/USD After Overnight Risk Plunge

Dollar Traders Watch EUR/USD, AUD/USD After Overnight Risk Plunge

We were reminded this morning that these are not the kind of market and fundamental trading conditions that you can simply leave a risk-sensitive position unattended in. Through much of the active trading hours Thursday, speculative trends were tame and the safe haven dollar was left to drift in its ever-tightening range. With speculative participation already near 15-year lows (measured through S&P 500 futures open interest) and the FX Volatility Index dragging along at 5-year lows, there is the natural inclination to simply return to the sidelines while some even let their riskier positions collect yield. However, a lack of liquidity, markets dangling at extremes after an aggressive rally the past four weeks, and a serious unresolved risk in the US Fiscal Cliff does not make for a safe / passive trading environment.

After the rather slow trading through Thursday’s session, volatility ripped through the markets during the morning hours of the Asian trading session – normally the quietest period for systemic activity. The catalyst was the market’s last, major threat through the end of the year: the countdown to the automatic US budget adjustments. Yesterday, after the White House and Republican Congressional leaders broke without any reported progress on the ongoing negotiations; Speaker Boehner said that a Plan B bill would be put through the House of Representatives. Both the Senate Majority Leader and President both said the proposed back up plan would never receive approval through their respective phases, so market-based Fiscal Cliff watchers should have already discounted the effort’s market influence. And yet, when news that there wasn’t enough support in the House to pass the bill hit the wires before 8 PM EST, the markets started to convulse. The most dramatic effect came through the S&P 500 futures which collapsed nearly 50 points in minutes. The failure of an effort that wouldn’t be taken seriously wasn’t likely what the markets were responding to, rather it was the suggestion that the House was in recess until after Christmas.

If this critical branch of government is offline until next Wednesday, there is only four full days (fewer for reasonable negotiations) to push through a deal that averts automatic tax hikes and spending cuts that the Congressional Budget Office forecasts will pitch the US economy into recession in 2013. A deal can still be done, but the probabilities that it won’t are clearly starting to rise. The return of tail risk certainly exposes positions that are deemed ‘risky’. And yet, when we look at the risk sensitive majors (EURUSD, AUDUSD, GBPUSD) and incredibly overbought yen crosses (EURJPY, AUDJPY, NZDJPY), the reaction was tepid. A difference in market depth and speculative concentration no doubt has a lot to do with this. Now we watch to see whether a ‘flash’ reaction will have deeper implications for risk that leverage an 11th hour dollar rally. It is important to remember: next week will be largely drained of participation, but we also have the Quadruple Witching Friday expiration Friday.

Euro Takes a Hit Through Risk Channels Overnight

Over the past few weeks, there has been something of a collective sigh of relief amongst Euro traders as sovereign yield spreads, banking crises and sovereign aid payments have all found progress. This has certainly generated a serious push of support for the shared currency as it has risen against everyone of its counterparts over the past month. Yet, a relief rally is a passive move. An active catalyst can easily take the reins. The jump in the Spanish and Greek deficit along with the three-and-a-half year low in EZ consumer confidence stir a little concern, but outright risk aversion the tide that sinks all ships. In early Friday trade, the Euro is down against all but the New Zealand dollar.

Australian and New Zealand Dollars Dive on US Fiscal Cliff Fears

There are those that believe currency’s that bear a higher yield are in fact ‘safer’ than their counterparts because they produce return that offsets possible capital losses (a decline in the currency). However, when risk aversion kicks in, the need is to ‘free up’ capital to either cover losing trades or hold cash. We felt a little bit of that headwind this morning when the Fiscal Cliff headlines drove equity futures lower. The threat of a broader unwind of speculative positions before the general liquidity drain of next week can exacerbate already richly priced currencies.

Japanese Yen Nudged Higher but Full Reversal Not Yet Confirmed

After a consistent drive higher, the yen crosses have essentially leveled off the past two trading days. And, finally this morning, it seems like there may be the start of an effort to unwind late-in-the game speculative positions (not to mention a sudden demand for safety. The yen is up across the board this morning (from 0.6 to 1.0 percent) on the US fiscal fears, but we are not yet seeing a full blown freefall.

British Pound: Short-Term GBPUSD Fear Reading at Record Low

Generally, activity levels across the capital markets have receded over the past weeks, months and even years. That is why we find the FX Volatility Index at its five year low and the trend in S&P 500 volume dropping to multi-year lows itself. However, there are some that are even more inert than others. And, for the short-term risk measure of GBPUSD (one-week implied volatility); we find an incredible extreme – a record low below 4 percent. The pair is certainly more fundamentally stable than most, but such a lack of concern is worrisome.

Canadian Dollar Faces Risk Winds Heading into Heavy Data

Is the Canadian dollar the perfect blend of safe haven and investment appeal? With the IMF’s reserve status contemplation still lingering in the air, we found a surprise jump in domestic economic strength from Canada in the form of the biggest jump in retail sales since October 2011. A tame performance in the risk-off overnight will lead us into possible beta volatility and GDP, CPI data tomorrow.

Gold Breaks Mid-Point of Year’s Range, Ignores Stalled Plan B News

With the Fiscal Cliff activity through the overnight, gold’s tumble might make sense. Yet, the dollar hasn’t really taken off, a Fiscal Cliff would theoretically boost the metals value (through possibility of US downgrade) and the commodity actually made its drop before the drop. Yet, break the mid-point of the year’s range and 200-day moving average it did. The five-day slide is the biggest since July 10, 2011.

Dec 21, 2012

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OctaFX.Com -Forex Analysis. Dollar, Yen Aim Higher as Fiscal Cliff Fears Escalate

Talking Points

• Dollar, Yen Aim Higher on Haven Flows on Swelling “Fiscal Cliff” Fears
  
• Pre-Holiday Liquidity Drain, “Quadruple Witching” May Boost Volatility
  
• Supportive US Economic Data to be Overshadowed by Budget Deal Woes
  

Risk sentiment appears to be crumbling as expected amid a lack of progress in US “fiscal cliff” negotiations. Divergent headlines pulled markets in opposing directions throughout the week but confidence began to crumble in earnest as plans to vote on the so-called “Plan B” – a unilateral Republican initiative aimed at raising taxes on millionaires – failed to secure enough support to warrant a vote.

S&P 500 index futures are pointing sharply lower in late Asian trade, down nearly 1.6 percent having spiked down over 3 percent as the “Plan B” failure crossed the wires.

This makes for an ominous sentiment signal as markets head into the final hours of the trading week, hinting a sharp pick-up in risk aversion is brewing. Volatility may also prove unusually intense as liquidity dries up ahead of the Christmas holiday.

“Quadruple witching” – the simultaneous expiry of stock index futures, stock index options, stock options and single stock futures – may complicate market conditions further. Continued risk aversion is likely to boost the US Dollar and Japanese Yen against their major counterparts.

The final revision of third-quarter UK GDP figures headlines the economic calendar in European hours, with forecasts. Later in the day, the spotlight shifts to a busy US docket. November’s Personal Income and Spending figures as well as the Durable Goods Orders report are all due to cross the wires, with narrow improvements expected on all fronts. A revision of Decembers University of Michigan Consumer Confidence figure is also on tap.

Here too, forecasters are pencilling in a slight upgrade. Cheerful economic news can hardly be expected to meaningfully underpin sentiment however absent a breakthrough on the “fiscal cliff” side of the equation.

Dec 21, 2012

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OctaFX.Com - Forex: Dollar Posts Biggest Rally in 7 Weeks, EURUSD Tips Revers

• Dollar Posts Biggest Rally in 7 Weeks, EUR/USD Tips Reversal
  
• Japanese Yen Still Heavily Oversold and Risk Sensitive
  
• Euro Risks More Prominent than Advance Lets On
  
• British Pound Finally Breaks Exhausted Drive with Biggest Dive in Four Months
  
• New Zealand Relieves Overbought Leverage Better Than Counterparts
  
• Canadian Dollar: Steady GDP and Easing CPI Good for Economy, Not Yields
  
• Gold Posts Biggest Weekly Drop in Six Months Despite Uncertainties
  

Dollar Posts Biggest Rally in 7 Weeks, EUR/USD Tips Reversal

Typically, the lead into the holiday liquidity drain presents a mild boost to risk-sensitive assets as volatility tapers off. And, naturally, the safe haven dollar suffers for the market tranquilizer. Yet, that wasn’t the scenario we were met with this past week. Though the last full week of trading before the holiday’s take a large swath of the western world offline through the remainder of the year, we saw a clear increase in speculative uncertainty and particularly strong risk aversion shift through this past Friday’s session. The afterhours shock US equity futures felt after the House of Representatives failed to pass the Speaker’s ‘Plan B’ bill rippled over to the FX market as the London and New York sessions came online. For the Dow Jones FXCM Dollar Index (ticker = USDollar), a 0.4 percent advance represented the biggest rally advance since November 2 and cleared the pressure from serious congestion – with a bearish bias – that had developed over the past month.

What is particularly odd about the dollar’s performance to end the week was that the equities risk reaction preceded that of the dollar. Normally, it is the currency market that moves first, or they will move simultaneously. This delay suggests that it wasn’t just a late reaction to the bombastic Fiscal Cliff headline, rather we were also seeing the speculative unwind that normally precedes the liquidity drain ahead of holidays.

Looking ahead to the rest of 2012, shallow market depth and lingering fundamental uncertainties will create a volatile backdrop that curbs meaningful trends. On the other hand, there is still pent up risk in pairs like EURUSD and yen crosses; while the Fiscal Cliff remains an active catalyst. Given the S&P 500 and EURUSD have only retraced around1 percent from highs following 7.7 and 5.1 percent rallies (respectively) from mid-November, there is likely a considerable level of exposure that can be unwound naturally or with the encouragement of uncertainty in the US fiscal health. Following the timeline for the Congress-White House negotiations, the House of Representatives (a critical leg to the proceedings) isn’t scheduled to reconvene until the afternoon December 27. That leaves only two full business days to strike a deal before the turn of the year and the automatic tax hikes and spending cuts take effect. Even if it is still more likely that a resolution is found, the last minute antics will act to unnerve speculators that are attempting to remain in the market.

Japanese Yen Still Heavily Oversold and Risk Sensitive

The Japanese may have gained ground against all of its major counterparts this past Friday (from 0.2 percent against the dollar to 1.5 percent versus its New Zealand currency), but this barely a minor percentage of the currency’s massive depreciation over the past weeks and months. Over the past month, the yen has plunged between 5.0 and 8.7 percent while over the past five months it has collapsed between 7.8 and 16.9 percent. Over the long-term, the funding currency is absolutely overbought and likely to systemic declines at the hands of a stimulus-minded, LDP-led government. Yet, there is a threat of risk aversion (which kills carry exposure) and the overbought bearing of the currency exposes it even in calm conditions. For the yen crosses to continue their incredible climb (yen depreciates), we would need a strong risk appetite advance or definable progress on Japanese stimulus efforts. Both are low probability and thereby not my primary bias.

Euro Risks More Prominent than Advance Lets On After the kiwi dollar’s retracement this past week, the euro easily takes the spot as the market’s most overbought currency. Over the past two weeks, over the past two weeks alone, it has advanced between 1.2 and 4.0 percent against its major counterparts (with the exception of EURCHF). This most recent leg of strength has come on the back of the long-awaited progress on the Greek rescue payment – first the bond buyback program and then officially receiving its tranche of aid. This certainly removes an imminent risk from the immediate path of the euro, but how much of this outcome was already priced in? How long can a rally based purely on ‘relief’ last? That likely depends on underlying risk trends over the next week. And, beyond that, we will return to Spain’s financial troubles, Italy’s election and Portugal’s demands for equal treatment.

British Pound Finally Breaks Exhausted Drive with Biggest Dive in Four Months

Considering GBPUSD and GBPJPY extended their impressive advances to top 15 and 20-month highs respectively, there were certainly an air of extreme positioning for both. A general buoyancy through risk trends no doubt contributed to this move, but that lift has stabilized. What’s left is a sterling that has few selling points of its own for distinct fundamental strength. The cable’s impressive 0.7 percent (107 pip) drop Friday was the biggest in four months and is a good representation of what over-extended markets are prone to do in thin conditions.

New Zealand Relieves Overbought Leverage Better Than Counterparts

There was certainly a risk aversion shift late this past week, but little pressure was relieved from most extreme assets. The exception, however, was the New Zealand dollar. Over the past week, the kiwi has tumbled between 1.2 and 3 percent to significantly ease the sensation of extreme positioning. What does this mean for the week ahead? If there isn’t an active risk deleveraging move in market, the kiwi won’t naturally ease.

Canadian Dollar: Steady GDP and Easing CPI Good for Economy, Not Yields

While most traders were focusing on the general bearing and pace of risk trends Friday in the wake of the Fiscal Cliff headlines, the Canadian dollar had more than its fair share of tangible fundamental leverage. October GDP figures offered a tepid pace of growth to add to its elite status while a three-year low from the headline CPI takes a dangerous jab at its unique, hawkish interest rate outlook.

Gold Posts Biggest Weekly Drop in Six Months Despite Uncertainties

Gold has dropped 2.3 percent – the biggest tumble for the metal since the period ending June 22. This aggressive slide is remarkable for its momentum against a rather steady dollar (its primary foil), the push below the 200-day moving average and the distance it has claimed since rejecting $1800. It seems few investors want to hold a potentially volatile and illiquid commodity if a Fiscal Cliff deal is done.

Dec 22, 2012

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OctaFX.Com -Watch out current Financial Analysis of OctaFX

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Dec 25, 2012

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OctaFX.Com -Yen down as Japan gets a new government; U.S. shares gain

NEW YORK/TOKYO (Reuters) - The yen fell to a 20-month low against the dollar on Wednesday after Japan swore in a new prime minister who has promised aggressive stimulus measures to rein in deflation, while U.S. stocks and oil rose in thin trading.

The dollar rose to a 20-month high of 85.48 yen on trading platform EBS following the swearing-in of Shinzo Abe as premier. Traders eyed the dollar's 2011 high of 85.53 yen as the next target.

Abe is calling for a mix of aggressive monetary policy easing and big fiscal spending to beat deflation and weaken the yen. He is pressuring the Bank of Japan to adopt a 2 percent inflation target that would auger for a weaker currency, threatening changes at the central bank if his wishes are not met.

The euro rose as high as 112.92 yen on EBS, a 16-month high, and was last at 112.68 yen, up 0.8 percent. The euro was at $1.3244 against the dollar, up 0.5 percent.

"The election of Abe has had a galvanizing effect on the dollar/yen exchange rate and he has been able to accomplish more in two months of jawboning than the BoJ has... over the past several years," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.

U.S. shares were slightly higher in post-Christmas trading with Congress likely to resume negotiations to avoid the "fiscal cliff," a series of $600 billion in spending cuts and tax hikes that would slow the U.S. economy sharply unless lawmakers take action.

A U.S. official said on Tuesday that President Barack Obama may return to Washington from his Hawaiian holiday as early as Wednesday evening to resume talks.

The odds are increasing that Congress will not come to an agreement before the end of the year, however, leaving a series of big decisions to early 2013, when tax rates are scheduled to rise for most Americans. Economists warn that the world's largest economy could fall into recession.

There is some concern that the impending tax hikes cut into holiday spending in the United States. Holiday-related sales were up 0.7 percent from October 28 through December 24, compared with a 2 percent increase in 2011, according to MasterCard Advisors SpendingPulse.

Many markets remain closed following Christmas. European exchanges were largely shuttered, and Hong Kong and Australia were also closed.

The Dow Jones industrial average (.DJI) was up 10.09 points, or 0.08 percent, at 13,149.17. The Standard & Poor's 500 Index (.SPX) was down 0.95 points, or 0.07 percent, at 1,425.71. The Nasdaq Composite Index (.IXIC) was down 3.05 points, or 0.10 percent, at 3,009.55.

U.S. single-family home prices rose in October for the ninth month in a row. The S&P/Case Shiller composite index of 20 metropolitan areas gained 0.7 percent in October on a seasonally adjusted basis, stronger than the 0.5 percent rise forecast by economists polled by Reuters.

Ten-year U.S. Treasury notes rose 4/32 of a point in price to yield roughly 1.7598 percent. The U.S. bond market was closed on Tuesday for Christmas. (US/)

Brent crude climbed above $110 per barrel on Wednesday, hitting a two-month high, with investors hoping for a last-minute deal to avoid a U.S. fiscal crisis. U.S. crude futures gained $2.39, or 2.8 percent, to $91. (O/R)

YEN WEAKENS

The weaker yen has bolstered hopes for better earnings from Japanese companies and underpinned the Nikkei, which has gained some 18 percent since mid-November, when the election was scheduled. The yen has lost nearly 8 percent against the dollar in the same period.

The Nikkei (.N225) closed at a nine-month high with a 1.5 percent gain on Wednesday. (.T)

Minutes of the BOJ's policy-setting meeting in November, released on Wednesday, showed that some board members said the central bank must act decisively, without ruling out any policy options, if the outlook for the economy and prices worsens further.

MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> was little changed. Shanghai shares (.SSEC) were flat, but stayed in positive territory on the year after a 2.5 percent jump on Tuesday erased 2012 losses. It is set for a first annual gain in three years.

Dec 26, 2012

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