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Forex market outlook in 2012


Strong United States Dollar instability into the very first full day of trading in 2012 implies that we will possibly see comparable trends in the foreseeable future, identifying trend and breakout based United States Dollar trading for an indefinite period.

With the markets unenthusiastic about the latest ‘fiscal compact’ of the European Union (EU), a noticeable slide of the euro has already been begun. Possible ratings downgrades and elections will definitely add to the pressure for the duration of the first two quarters of 2012 and this will weigh on currencies that are cyclically correlated like the C$, which in no longer seen to be strengthening through uniformity next year.

The Asian currencies that were set to decline in the first quarter of 2012: 2011 closed with an amount of calm in view of the fact that investors show signs of patience in relation to issues of European debt. However, the indisputable fact remains that global growth in general and sluggish European growth in particular, will weigh heavily on external demand and this will exert pressures of depreciation on the Asian currencies; with the omission of the CNY, where it is expected that China will continue to edge the currency towards levels that are firmer.

Monthly Forex Outlook
Having not yet reached a consensus as to how to put the 50 percent haircut of private bond holders into service, which is the foundation of the most recent rescue package of the Greek, the rapid execution of the €130 bn bail out could be faced with challenges.

With IMF and EU officials going back to Athens in the middle of January to evaluate the steps forward in relation to austerity, if there is disagreement then, the markets could be kept on edge. United States Political Bargaining: Political power struggle with reference to an extension of tax cuts on payroll drags on, with a give and take in the Senate seeming that it will meet up against resistance in the House. If political rivals are unable to get to a lasting solution, the threat of a crippling fiscal squeeze remains likely.

The United States dollar has been primarily supported in the last few months by short periods of risk aversion and this is as a result of domestic political uncertainty as well as events in Europe. However, support for the United States dollar has also been received from some domestic economic data that was better than expected, especially in relation to the labor market; which remains to be Achilles’ heel of the recovery of the United States.