*Last Updated January 12, 2006, 1:08 am

Daily report by CMC Markets

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FOREX ANALYSIS

Interest rates, US trade data set to direct currency markets in near term

January 12th - There’s been little direction available for currencies in overnight trade as many continue to stay out of the market ahead of the US balance of trade figures due later in the session. Overall the dollar has seen some selling with the Yen making a brief foray below the 114 level, but economic data released from Japan in recent hours – perhaps most notably another fall in bank lending – is showing once again that the country is still some distance from being in a position to start tightening monetary policy. The prospect of soft yields on the JPY is therefore likely to limit further gains for the currency even though there’s mounting speculation that the FOMC meeting scheduled for January 31st could result in the last rate hike of this current cycle. Elsewhere, rate verdicts are due from both the European Central Bank and the Bank of England and although consensus is perhaps that both will remain unchanged today, expectations are that in the near term Sterling yields are set to fall whilst those on the Euro will rise. It may have been a rather quiet few days for currency markets, but there’s little doubt that volatility is now poised to increase somewhat rapidly in the near term.

Tim Wilbraham and Enis Mehmet



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