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OPENING COMMENT

Some holidays in Asia have left markets fairly quiet thus far, with the first session of the week starting off with some more consolidation. Nevertheless, the consolidation has not favored the USD which managed to claim a small victory on Friday with a positive close against all of the major currencies. The Euro remains well bid above 1.5000 and has in fact just squeaked out a fresh 2009 high by 1.5065 ahead of the latest minor pullback. Some have attributed the overnight USD sell-off to comments from China’s Zhou Hai, who expressed his personal opinion that China should be reducing its proportion of USD reserves.

Lately, price action seems to be less a function of any short-term fundamentals, and more predicated on the desire to continue to hammer the greenback until proven otherwise. Data released overnight from Australia was certainly not Aussie supportive after producer prices came in much softer than expected. In New Zealand, despite the holiday, the single currency received a shot from its own PM, after Key said that there was not likely to be any upward pressure on rates until the second half of 2010. We are somewhat surprised that Kiwi has not traded lower than it has overnight, with many investors having held on to the belief that a rate hike in New Zealand would have come much quicker.

Other weekend developments have also not been currency supportive, with US Capmark Financial Group filing for bankruptcy, reminding market participants just how bad the condition of the commercial real estate market continues to be. Meanwhile in Canada, Bank of Canada’s Carney has pressed on with his dovish and downbeat outlook going forward, while ECB Noyer warns of future downside risks to the global economy. Sterling remains the weakest currency on the back of Friday’s disastrous GDP numbers, and has failed to regain any composure even with some upbeat comments from PM Brown over the weekend who vows that the economy will see growth by year end.

Looking ahead to the European session , the Swiss business consumption indicator is due at 7:00GMT, followed by Eurozone M3 at 9:00GMT. UK CBI distributive trades caps things off at 11:00GMT. US equity futures trade relatively flat, while commodities are tracking lower, led by oil declines.

Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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