FX markets remain fairly range bound as we wait for the US fourth quarter GDP due out at 1330 GMT. The data should set the tone for the dollar as we end the week. The US economy is expected to have expanded by 3.5 per cent in the final three months of the year, according to a survey of the market by Bloomberg. The balance of risks is to the upside and growth could come in above 4 per cent. Trade should have a positive impact on the US economy after subtracting from growth in both the second and third quarters of 2010. The trade balance stabilised just below $40bn in December and exports have been growing. Added to this, the extension of the Bush-era tax cuts has boosted consumer confidence and suggests that retail trade will pick up albeit from a low level.

The ingredients are in place for the US economy to pick up after disappointing data in the second and third quarters of 2010. If growth is at 3.5 per cent, then the US economy would be back to its pre-recession size. While that could boost investor optimism in the short-term, it has taken a long-time to bounce back from this recession compared to previous downturns and unemployment still remains high. The output gap is still sizable due to the economic potential that was lost as a result of the financial crisis' devastating economic impact. This is keeping inflation and unemployment at disappointing levels. Indeed, The Fed's preferred measure of consumer prices the core PCE will also be released for the fourth quarter along with the GDP data later today. This is expected to have fallen to 0.4% in the fourth quarter from 0.5% in the third, which is the lowest level for more than two decades.

So while an upside surprise in growth data may spur the dollar to a strong finish for the week as it starts trading as a growth currency, the actual outlook for the economy is slightly more subdued. Treasury Secretary Timothy Geithner is talking at the economic forum in Davos said that the US is not going to experience a boom and growth is not rapid enough to bring down unemployment. Without monetary and fiscal stimulus the US economy would still be languishing in the doldrums. This support also raises questions about the US deficit. Debt levels are expected to exceed more than $14 trillion this year larger than the entire US economy, for the first time. A credit rating agency warned that it may need to place a negative outlook on the US's Aaa credit rating sooner than anticipated as the budget deficit widens. This is a serious issue that the US needs to address. While the US's debt levels are in focus, the USD may find it hard to sustain a rally even if growth is strong.

There was more bad news for Spain's economy. The unemployment rate is rising again; it topped 20 per cent in the fourth quarter of 2011, up from 19.79 per cent in the third quarter. However, the country is taking steps to sort out its banking sector. Although profit fell at La Caixa, a domestic savings bank after an increase in bad loans, it announced plans to list on the stock exchange. It is the first of Spain's domestic lenders to list, which is part of the government's plans for re-capitalising the troubled domestic lenders, which make up 50 per cent of Spain's banking sector. This is the first step on a very long road to rehabilitation, but this along with some hawkish comments from ECB members is helping EURUSD to sustain gains above 1.3700 as we lead into the GDP data this afternoon.

Elsewhere, the Swiss franc is performing well after a leading economic indicator for January surpassed market expectations. The yen has also pared some of yesterday's losses after the S&P downgrade to Japan's sovereign credit rating.

Stocks are fairly directionless in the absence of much economic data out of Europe. A close above 1,300 in the S&P 500 this week would be a bullish sign for further gains. Strong US growth may fuel risky assets during the New York session. Money supply in the Eurozone was the highlight. It remains fairly lacklustre, and loan growth eased at the end of last year. The annualised rate of money growth was 1.7 per cent in December, which may reduce pressure to raise interest rates in the currency bloc as this is one of the key measures used by the ECB to try and gauge future inflation.

Data watch:


11.00 GMT (0600 ET) US Geithner speaking

13.30 GMT (0830 ET) US GDP Last 2.6 Q/Q Exp 3.5 Q/Q

13.30 GMT (0830 ET) US GDP Price index Last 2.1 Q/Q 1.2 Y/Y Exp 1.0 Q/Q 1.5 Y/Y

13.30 GMT (0830 ET) US personal Consumption Expenditure Last 2.4 Exp 4.0 13.30 US Employment cost index Last 0.4 Exp 0.5

14.15 GMT (0915 ET) EU Bini Smaghi Speaks

14.55 GMT (0955 ET) US Michigan Consumer Sentiment Last 74.5 Exp 73.5


Best Regards,

Kathleen Brooks| Research Director UK EMEA | FOREX.com

d: +44.(0).20.7398 5024 | f: +44.(0).20.7929.2010 | e: kbrooks@forex.com| w: www.forex.com/uk

12 Camomile Street | 9th Floor | London EC3A 7PT

Now you can follow us on Twitter: http://twitter.com/forexresearch


Authorised & Regulated by the Financial Services Authority

Forex and other leveraged trading can involve significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary. This email contains confidential information belonging to FOREX.com and is intended solely for the addressees. The unauthorised disclosure, use, dissemination or copying (either whole or partial) of this email, or any information it contains, is prohibited. FOREX.com assumes no responsibility for errors, inaccuracies, or omissions in these materials. FOREX.com does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. We respect your privacy. Email addresses are not released to third parties.

FOREX.com UK a trading name of GAIN Capital - FOREX.com UK Limited and is authorised and regulated by the FInancial Services Authority. FSA No. 190864.