FX markets are little changed from last week, as participants seem content to let the year wind down. The Asian session was thinned by holidays in Australia and New Zealand, but overall risk correlated trade faired well. The EURUSD has been range trading between 1.4355-1.4405 while USDJPY is trading in an increasingly tight range between 91.40 and 91.65 (barring a spike to 91.77 earlier in the session). Volumes were inconsequential and we are seeing a drop in liquidity continues across all currencies. The news of a terrorist attempt on a Detroit-bound passenger plane failed to unhinge investors, possibly because no one was around.

Yesterday, China’s Premier Wen Jiabao conducted an interview with Xinhua News Agency on China ‘s economic policies after the financial crisis. Wen highlighted the importance of not exiting fiscal stimulus policy prematurely and preserving a moderately loose monetary policy strategy through 2010.

And in regards to the CNY, the premier repeat his idea that “a stable Chinese currency benefits the international community”, and went on to say “countries that demanded CNY appreciation while practicing trade protectionism against China are actually holding back China’s development.” We can take a couple important points from this interview. First is that while the government might introduce some differentiation in policy, which could be misinterpreted as tightening, overall the policy will stay accommodative, which, in turn, will support the global recovery story. Second is the firm stance Wen took on CNY exchange rate policy, signaling the government’s determination to keep the currency stable and will not yield to external pressure to allow the CNY to appreciate. Clearly, the government is concerned over the health of the export sector and doesn’t want to encourage speculation and subsequent hot money inflow due to policy shift.

In Japan, the flash estimate for November industrial production came in at +2.6% m/m vs. 2.5%, prior 0.5%, while the annualized print, at -3.9% y/y fell at its slowest pace since September 2008 while retail sales rose 0.2% m/m. Friday, Japan’s DPJ-led coalition government announced the largest budget ever, involving a spending of ¥92.3 trn and a 4.2% increase from this year’s prediction. The details and size of the budget was well within expectations but only after roughly Yen95bn in ministerial request would not be granted.

Trading will be reserved as there is really nothing on the economic calendar and the UK has a public holiday. Later this week, the 2nd tier release highlights will be the S&P/Case-Shiller index, consumer confidence, Chicago PMI and initial jobless claims.

The Risk Today:

EurUsd For another very light data calendar we are anticipating continued choppy trading in thin liquidity. Clear trading above 1.4350 will put the focus on1.4515 now acting as decent resistance. Any break above there would face a major hurdle rallying higher at 1.4685.First downside support is at 1.4350 5dma then the psychological & 200dma barrier at 1.4200-08 should provide near term support.

GbpUsd Rangebound trading between 1.5930 to 1.6020 then 1.6100 horizontal resistance then critical upper band of bearish trend at 1.6110. Later support can be found 1.5903 ahead of the 1.5708 pivotal low.

UsdJpy Trapped below 92.00. The uptrend that has been in play since 27th Nov (where we bottomed at 84.81) remains intact, and Friday’s rally took us to highs of 90.91 before the 9 month downtrend came into play and slowed any further gains. The 4-week uptrend coupled with major resistance at 92.30 is now creating a very clear ascending triangle pattern, and a break to the upside would look to target 97.00 levels. In the meantime however, expect lite supply above 92.00 and getting heavy around 92.30. Support stand at 91.20 range low.

UsdChf Slowing upside momentum will presure downside as the pair make lower lows. 1.0389 5dma forms first resistance, with next levels above there at 1.0625, and beyond there the 1.0700 major resistance and 38.2% correction of the move from 1.1970 down to 0.9918. Near term support stands at 1.0296 ahead of 1.0219 low.

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