Forex News | Currency News by Forexlive

This is for all you “glass half empty” folks…S&P up 86% from market bottom…

Hoping everyone has a healthy and prosperous 2011!

All the best from all of us here at ForexLive.

See you on the other side…

Now that the month-end, quarter-end, year-end fixing is out of the way, markets are coming back to earth.

EUR/USD has fallen back to the high 1.3340s after a spike to 1.3425 around the time of the 16:00 GMT fix.

USD/JPY is up to the low 81.20s after a brief probe below the 81.00 level.

AUD/USD is holding onto the bulk of its gains, still above the 1.0200 level that provided a cap the last few sessions. it is now around 1.0225 from highs of 1.0252 just after after the fix.

My call for 2011 is that the US deficit will come in significantly below projections of roughly $1.3 trln and it will improve even further in 2012.

There are two reasons why I expect improvement. First, the 112th Congress will be radically different than the profligate 111th Congress it replaces (Cash for Clunkers anyone? Home buyers tax credit? Bye-bye!). Many of the incoming House freshmen are tea-party adherents who will focus far more on the size and role of government than on “solving” every conceivable problem with 2,000 impenetrable 2,000 page pieces of legislation.

The second, and most important factor, is that I expect the US economy to grow more robustly in 2011 than in 2010, when growth sputtered at mid-year after a firm start.

A wild-card that could radically alter the deficit picture is the potential, small though it is, that Congress and the President could come together to forge a comprehensive budget overhaul along the lines of the Simpson-Boles commission recommendations from earlier this month.

Reforming entitlement spending before the economy is hit with the building budgetary/demographic tsunami scheduled to hit later this decade is the the most important task the government needs to undertake. It will be politically unpopular, but it cannot wait.

If tangible progress can be made in reining in future government outlays, markets will become much more forgiving of cyclical deficits prompted by the global financial crisis of the last several year. That would go a long way toward returning the dollar to the unchallenged global reserve currency, in my view.

Does the market expect that to happen this year? Not by a long shot, but the potential is there, in my view. Obama will be focused on his reelection and will take a page from Bill Clinton in working with Congressional Republicans to get things done in the second half of his first term after spending the first half of his term working with his political base to pass their political wish-list, now largely accomplished…

We live in hope.

It’s been such a rough day for the dollar that even the CAD moved today…

It’s a little thin out there, apparently.

USD/CHF slipped as low as 0.9301 during the 16:00 GMT fixing only to ramp as high as 0.9371 12 minutes later…

Don’t say you weren’t warned…

…who can’t find anyone to take the other side of his order to buy umpteen EUR/USD at the upcoming 16:00 GMT fixing…

Looks to me it is all equity driven month-end demand at work here…

EUR/USD is up to 1.3420, AUD to 1.0220, USD/JPY to 81.00…

On CNBC, they are showing New Years celebrations in Hong Kong…What’s up with that?

AUD/USD has taken out whatever barriers and stops were in the 1.0200 area and has traded up to 1.0220.

Year-end markets can become very one-sided and that clearly has been the case in USD/JPY.

Book squaring by Japanese exporters for quarter-end and dollar-negative fixing flows are keeping the greenback weighed down. We trade now at 81.16, the lowest level since September 11.

Looking into early 2011, my gut tells me that interest rate differentials will reassert themselves and USD/JPY will rebound within its range, once seasonal factors wane and renewed speculative interest returns to the market with the new year.

The regional Fed presidents are all members of the Federal Open Market Committee, the rate-setting body of the Federal Reserve Board. Not all members have a vote every year, however. Only the president of the New York Fed has a permanent vote and also serves as the Vice Chair of the committee. The membership of the committee changes on January 1 of each year.

The Federal Open Market Committee consists of twelve voting members: the seven members of the Board of Governors and five of the twelve Federal Reserve Bank presidents. The president of the Federal Reserve Bank of New York serves on a continuous basis; the presidents of the other Reserve Banks serve one-year terms on a rotating basis beginning on January 1 of each year. The rotating seats are filled from the following four groups of Banks, one Bank president from each group: Boston, Philadelphia, and Richmond; Cleveland and Chicago; Atlanta, St. Louis, and Dallas; and Minneapolis, Kansas City, and San Francisco.

All of the Reserve Bank presidents, even those who are not currently voting members, attend FOMC meetings, participate in the discussions, and contribute to the assessment of the economy and of policy options.

The new votering members of the committee are on balance more hawkish than most District presidents.

Uber-Hawk Tom Hoenig loses his vote, is being replaced by the middle of the road head of the Minneapolis Fed. Locherlakota.

Dove Pianalto from Cleveland is being replaced by dove Evans of Chicago.

The hawkish Dick Fisher of Dallas is replacing the quixotic Bullard who tiled from hawkish at the begiing of 2010 to the father of QE2 by the end…

Boston’s dovish Rosengren will be replaced by Philadelphia hawk Plosser.

What does the more hawkish tilt to the voters mean? Diddly.

Hoenig is by far the most hawkish member of the committee, voter or non-voter. At most, we may see once of the hawks assume the role of loyal opposition to super-easy policy…

The FOMC governs by consensus with the Chairman usually setting the tone. It has been that way for more than 30 years and is unlikely to change anytime soon.

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