The Swiss franc stole much of the attention in European hours. The market remains of the view that the return to growth in Switzerland during Q3 will allow the SNB to reduce emergency policy measures and allow EUR/CHF to push lower. The EUR/CHF 1.51010 level had been associated with intervention, thus the move below does herald a new phase for the CHF. That said, it would be foolhardy to expect that the SNB will now allow EUR/GCHF to fall sharply, so nervousness about intervention still remains. Following a push to EUR/CHF1.4911 level this morning, a sharp bounce back above 1.4950 followed. Comments from the SNB mid-morning provided mixed signals for the market. The SNB warned the markets that a correction of monetary policy would be premature but also commented that low rates cannot be maintained indefinitely. EUR/CHF edged a little lower on the back of these remarks.

EUR/USD has moved off its lows during London hours, but USD strength remains a clear theme for the fx markets. The downgrading of Greece’s sovereign debt and expectations of more bad news from Spain and Portugal and potentially from Ireland, Iceland and the Baltics is likely to continue weighing on the EUR going forward. The bounce higher in EUR/USD this morning led to a similar move in cable and also allowed AUD/USD to push off the day’s lows. A downside correction in the AUD had followed last week’s less hawkish than expected RBA minutes and a poorer than expected Australian GDP report. AUD bears are also being stirred by speculation that the RBA will not only keep rates steady through February but could disappoint the market by keeping rates steady through an extended period. Further declines for AUD/USD and NZD/USD would be consistent with USD short-covering. However, on the view that the Australian economy is performing better than others in the G-10 and on the likelihood that the RBA will hike rates again ahead of the Fed, we would expect the AUD to run into solid support in the New Year.

Japanese Nov exports fell -6.2% y/y; this being the slowest pace for 14 months. The data will ease some of the concerns that the Japanese economy is still in danger of a double dip recession, though the danger of deflation continues to hang over Japan. Both USD/JPY and EUR/USD are presently caught in sideways ranges. The BoJ’s emergency credit facility announced earlier this month has helped push the JPY off its strongest levels vs the USD and the JPY and last week’s pledge from the BoJ that it would not tolerate a negative inflation rate should also protect upside for the JPY.

There has been no official UK data this morning although the CBI has revised higher its UK growth estimate for 2010 to 1.2% (from +0.9%) and forecast not only that the BoE will choose not to follow through with more QE in Feb but will raise rates in Q2 2010 and by a total of 150 bps by year end. This is a relatively bullish prediction for the UK economy. EUR/GBP this morning has remained range bound.

This afternoon the Chicago Fed activity index for Nov is due. Canadian retail sales will also be released.