Forex Forecast

France Downgraded (Again) Moody’s cut France’s Aaa sovereign rating by a single notch to Aa1. The news came in the twilight hours between the New York and Asia sessions when market liquidity was at a premium.

Risk Appetite Improves, Still Fragile Investor sentiment improved modestly overnight. US Treasury Geithner probably deserves much of the credit given his optimistic remarks late on Friday where he said a budget deal on the US fiscal cliff could be reached in ‘several weeks’.

Risk in Doldrums Risk appetite overnight was a general continuation of soft trends from Asia, as markets found it generally difficult to price in more positive events.

USDJPY Starts To Tire Risk appetite weakened in Asia overnight after a soft GDP report from Singapore and reports of escalating tensions in the Middle East.

USDJPY Still Firm Fed Chair Bernanke sounded downbeat on the state of the US housing market overnight. He said that a weak housing market represents a ‘powerful headwind to recovery’, and that a revival of the sector faces significant obstacles.

USDJPY Breaches 81.00 USDJPY continued its ascendency from the Asia session after the leader of Japan’s main opposition party again expressed a preference for a weaker yen, to be achieved via much looser BoJ monetary policy.

Japan’s Abe Boosts USDJPY USDJPY broke above key resistance levels after the leader of Japan’s main opposition party again expressed a preference for a weaker yen, to be achieved via much looser BoJ monetary policy.

Cliff Hurts Risk Again The FOMC minutes revealed that a number of participants at the October meeting thought more asset purchases would likely be needed after Operation Twist ends in December.

King Kicks Sterling Cable dropped 40 pips after Bank of England Governor King kept the door open to further Gilt purchases. Speaking after the quarterly inflation report was released, he said the MPC has (1) not lost faith in additional asset purchases as a policy tool, and (2) not decided to halt Gilt purchases permanently.

BoE, FOMC Views In Focus Risk was generally firm during the Asia session overnight and the prospect of accommodative Fed policy for longer has done this cause no harm.

Yellen Even More Dovish Fed Vice Chair Yellen sounded even more dovish than current Fed guidance, opining that the optimal trajectory for US monetary policy would hold the policy rate near zero until early 2016.