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Forex News Top Stories Forex Market Outlook 12/20/11

Markets are feeling much better this morning after they took a turn for the worse yesterday afternoon when rumors were floated that the US banks were now going to be held to Basel III capital requirements.  This would mean that they would need to keep more cash on hand, which is actually quite the opposite of what Bernanke and the Fed are hoping banks will do, that is, lend more.  The rumor mill can sometimes gain traction without the benefit of “real news” to drive market direction.  So be aware and expect the unexpected.

Fortunately this morning, we have the benefit of actual news and it has largely been positive from around the globe.  Let’s start in Australia, where the release of the RBA rate policy meeting minutes revealed strong growth despite the problems in the Euro zone and that the RBA would likely not be lowering rates as growth in partner nations has also looked strong.  This helped rally the Aussie to just shy of parity with USD.

In Japan, it was revealed that the Ministry of Finance plans to raise the limit for potential currency interventions, essentially re-loading the arsenal so to speak.  The Yen weakened as a result.

In the Euro zone, a slew of better than expected data has rallied the Euro, in addition to falling borrowing costs for a Spanish bond auction of short-term debt.   The majority of the news came from Germany, where PPI data came in as expected at 5.2% which was slightly lower than last month.

More importantly, confidence figures came in better than expected.  The Gfk survey came in at 5.6 vs. an expected 5.5.  The IFO surveys also came in better than expected with business climate figures at 107.2 vs. 106; current assessment figures at 116.7 vs. 116; and expectations figures at 98.4 vs. 97.  These are all very positive going forward and perhaps is a reflection of today’s other big news from the EU; that the unlimited 3-year loan program for banks from the ECB will begin today.  Expect that program to be utilized, big time.

In the UK the news was just as peachy with consumer confidence figures coming in higher than expected, posting a reading of 40 vs. an expected 36.  In addition, CBI reported sales came in much better than expected, posting a reading of 9 vs. an expected  -12.  The Pound has also rallied, receiving the benefit of overall risk appetite in the market.

So stocks and commodities are higher to start the US session, with gold back over $1600 and stocks showing early gains.

In Canada, CPI data came in mostly as expected and the Loonie is strengthening as a result.  Check out my chart of the day from Friday, which shows a winning trade still in tact.

Here in the US, both housing starts and building permits came in much better than expected with starts showing an increase of 9.3% vs. an expected increase of 1.1% and building permits advancing 5.7% vs. an expected decline of 1.4%.  These numbers are excellent considering that seasonal demand is usually lower at this time of the year and this has been reflected by a further surge in risk appetite after the release.

So we just may get that Santa Claus rally that everyone has been hoping for.  A few percentage point gains could be the difference between fund managers getting paid or not.  The data has largely been supportive of the global economic growth story and my feeling is that we would be a lot higher if the Euro debt crisis were resolved.

Demand for Euro debt has been good despite all of the risk surrounding the situation, though investors are being compensated with higher yields for taking on that risk.  So all is not lost despite the doom and gloom you hear on a daily basis.  With lower volume this week due to the upcoming holidays, investors just may get their stockings stuffed!