*Last Updated December 19, 2005, 2:04 am

Daily report by CMC Markets

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FOREX ANALYSIS

Liquidity and news flows falling in currency markets

December 19th - Both liquidity and news volumes in currency markets are now starting to thin ahead of the Christmas break, leading to a degree of unexpected volatility and direction through the Asian session. Dominating many thoughts of those who remain in the market is the fact that the FOMC seem set to cut the cycle of rate hikes in the not too distant future and technically this stands to weigh on the dollar, but the Yen has lost some ground – edging back from seven week highs against the greenback – in the last few hours trade. With little news around in the coming days, each item is likely to receive close inspection from traders and US housing data from the NAHB due later in the session is likely to be no exception. Expectations are for a contraction here - something that will undoubtedly support the shift in monetary policy at the Fed – so failure to meet with this could readily precipitate a further wave of dollar buying as the day continues. Softer oil prices also stand to buoy the dollar as this should start to ease the US trade deficit – a number which continues to cause concern – so expect crude to be closely monitored too, but as stated earlier liquidity is now thinning out and year end profit taking may result in what little fundamental data there is not driving the market in the most obvious of directions…

Stuart Scrase and Enis Mehmet



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