*Last Updated January 10, 2006, 11:59 pm

Daily report by CMC Markets

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FOREX ANALYSIS

Currency markets remain quiet ahead of US trade deficit data

January 11th - The major currencies remain somewhat passive ahead of tomorrow’s US trade deficit data, with little information around that seems likely to drive markets in the short term. The dollar is showing some modest signs of appreciation, but so far overall gains have been limited. The Japanese leading economic index reading issued overnight showed contraction as expected down to 60, although this is still well above the break-even point and in turn it should provide a degree of support for the Yen. Traders will however remain mindful of the drop in household spending recorded earlier in the week – something that will make it difficult for the country’s run of deflation to be broken. Oil inventory data is due for release today and the ongoing issue between Iran and the IAEA may see crude prices continue in a rather bullish mood – a fact that will not only ensure the US trade deficit remains stretched as we move through 2006, but something that is also likely to continue squeezing Japanese manufacturers who remain keen to minimise costs. The Japanese economy may be showing solid signs of recovery, but it would still seem that the days of higher interest rates at the BoJ may be a little way off yet.

Tim Wilbraham and Enis Mehmet



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