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FX Market Analysis

There was further speculation over ECB policies with sources suggesting that three possible quantitative easing packages were under discussion. Although there will be strong expectations of action at the January council meeting, there will also be a high degree of uncertainty, especially with the Greek parliamentary elections three days later which could stymie definitive action. Wednesday’s euro-zone flash inflation report will be watched closely with the Euro remaining vulnerable if there is a decline to below zero for the first time since 2009 while a zero annual rate could trigger a significant correction stronger given weak expectations.

A weaker than expected US ISM non-manufacturing index had some negative impact on confidence with a decline to a six-month low of 56.2 from 59.3 previously, although most underlying components, including employment, were firm. Labour-market data will be watched very closely over the next few days with the ADP report on Wednesday, jobless claims on Friday and the monthly employment data on Friday. Strong data would reinforce confidence in employment trends, although the impact may be limited given that the payrolls data was much stronger than ADP data last month. The latest Fed minutes will also be watched closely later on Wednesday.

Gary Beal