EUR/USD, GBP/USD, USD/JPY And AUD/USD Daily Report: December 11, 2012

As the year winds down, investors have been taking advantage of the increased volatility that’s present in the market since the U.S. announced better than forecast employment data. However, the U.S. dollar declined against the euro and the yen, as investors believe the Federal Reserve will increase its bond-purchasing program in what has been denominated as “Operation Twist” when it meets this week.

The U.S. dollar weakened further against the yen as Italy’s Prime Minister, Mario Monti, announced his intentions to resign, another factor that reignited worries over the eurozone’s debt crisis. And market investors traded with caution as lawmakers continued to discuss ways to avert the automatic tax increases and spending reductions due to go into effect in 2013 in just a few weeks from today. In the meantime, Canada’s dollar reached a seven-week high against its U.S. peer after the government approved the purchase of the energy company, Nexen Inc. by Cnooc Ltd. and gave the go ahead for buying the Malaysian Progress Energy Resources Corp.

The euro erased previous day losses as the markets settled down after Italian Prime Minister Monti announced that he would resign once the 2013 budget is approved. Until then, Prime Minister Monti will try to convince his coalition to approve the aforementioned budget; a factor that analysts say may weigh on the shared currency. Speculation that the Federal Reserve may opt for further stimuli kept the greenback’s rally at bay despite lackluster economic data released out of the euro region.

The British pound advanced versus the U.S. dollar as investors worried over the situation in Italy and the ongoing “fiscal cliff” talks in Washington. The sterling gained against the 17-nation currency subsequent to the news that Italian Prime Minister plans to resign, bolstering the appeal of the U.K.’s currency. The British currency strengthened against the remainder of its counterparts after domestic reports showed that full-time hiring climbed to a 19-month high.

The yen advanced against the U.S. dollar as market speculators opted for the safety of the yen in anticipation of the Federal Reserve’s two-day policy meeting scheduled to begin today. The Fed starts its last monetary policy meeting of the year and the markets are expecting it will adhere to the current policies or it will loosen its policies further. The yen dipped versus the pound and the euro.

Lastly, in the South Pacific, the Australian dollar slipped from close to a two-month high after China reported that its imports and exports fell short of forecasts, dampening the Aussie’s trade projections. The Australian currency snapped earnings from last week on reports revealing the country’s Home Loan Approvals rose less than predicted. And the New Zealand dollar climbed as data indicated the nation’s Manufacturing sector expanded. Both monetary units advanced dramatically versus the euro following news that former Italian Prime Minister, Silvio Berlusconi, plans to run against incumbent Mario Monti.

EUR/USD- Berlusconi Seeking To Return
The euro managed to gain against the U.S. dollar as investors relaxed after finding out that Italy’s Prime Minister plans to resign once the 2013 budget is approved. The news was released after it became apparent that the party of former Prime Minister, Silvio Berlusconi, would not continue to support the current government.

The euro rallied after the release of economic data which showed that Italy’s Industrial Production contracted by 1.1 percent in October; and the Italian Gross Domestic Product figures indicated that the country’s economy shrank 0.2 percent. Analysts anticipate that market investors will continue eyeing the situation in Italy to assess whether any changes will shake optimism in the euro region.
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GBP/USD- Full-Time Hiring Climbs
The British pound rallied against the U.S. dollar as political uncertainty in Italy bolstered the appeal of the sterling. Analysts believe that the pound remained strong as market investors speculate that any changes in Italy’s leadership may hamper the country’s economic recovery. The British currency was also supported by data, which showed that full-time hiring climbed to a 19-month high; according to the gauge which measures permanent job placements, the numbers went from 55 in October to 56 in November.
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USD/JPY- Yen Rallies On Fed Expectations
The yen climbed against the U.S. dollar as the markets await for the outcome of the two-day Federal Reserve meeting which starts today. Investors speculate that the Fed may opt for further stimuli. However, the current plan, which is denominated Operation Twist is due to expire this month and speculators think the Fed may implement another round of quantitative easing instead. On the data front, the Economy Watchers Current Index increased more than forecast in November from 39.0 to 40.0.
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AUD/USD- Aussie Edges Lower On Chinese Data
The Australian dollar edged lower against the greenback as traders remained cautious ahead of the Federal Reserve’s two-day policy meeting, and as Italy reported that Prime Minister, Mario Monti will resign. The aussie remained under pressure as China released data showing that its exports only rose 2.9 percent from the year before and imports did not change, prompting the country’s Trade Surplus to contract to $19.6 billion. Further data indicated that Home Loans increased by far less than forecast in October, slightly rising 0.1 percent.
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Today’s Outlook
Today’s economic calendar shows that the E.U. will report on the ZEW Economic Sentiment. Canada will release data on the Trade Balance. And Japan will issue figures on Core Machinery Orders and the Tertiary Industry Activity Index.