Market Brief January 07th

The release of the FOMC Minutes yesterday presented a mixed picture for the FX markets; on the one hand, the suggestions that the door should be kept open for further asset purchases beyond March gave rise to negative USD sentiment, but at the same time, a number of hawks on the committee pointed to the risk that such action could be highly inflationary (a situation that would lend itself to USD strength). Between the two scenarios, FX markets predominantly focused on the dovish arguments, and the USD weakened modestly against its major currency peers immediately after the release (EURUSD jumped from 1.4405 to 1.4435); however the overnight weakness in Asian stock markets has reversed these losses. One of the few currencies that has managed to remain higher on the day vs. the USD at the start of the European session is AUD; after Retail Sales for November smashed estimates, growing 1.4% MoM (against forecasts for a 0.3% gain), and with revisions higher to the month prior (to 0.4% from 0.3%). AUDUSD is now above the key 0.9185 resistance (currently trading 0.9200), and AUDJPY has hits 15-month highs at 85.55. The latter move was helped by comments from Japan's newly appointed Finance Minister Kan that he would cooperate with the BoJ in order to achieve a weaker JPY, and added further that many Japanese firms favour USDJPY around 95 levels - around 250 pips higher than current levels.