Major Currencies vs. US Dollar

(week-to-date % change)

Tight correlations between most major currency pairs and theS&P 500suggest broad-based market sentimenttrends remainfirmly in control of FX market price action, with theEurozone debt crisisstill the issue at the forefront. The week began with broad-baseddisappointment in the outcome of last week’s EU leaders’ summit, sending the safe-havenUS Dollar racing higher against its top counterparts. Looking ahead however, momentum seems likely to slow.

While there has been no meaningful progress on resolving the Eurozone’sproblemsor assuaging investors’general unease with the increasingly dour outlook for economicgrowthinthe year ahead, there hasn’t beensignificant deterioration either beyond what was already in place.This means that without new fuel to feed risk aversion, seasonal factors may force a period of consolidation.

Indeed, the markets find themselves just ten days removed from the Christmas holidayobservedin most major financialcentersand only two weeks away from the New Year break, with most major scheduled event risk already out of the way between now and 2012.This meanstraders are likely squaring their books and starting to pack up for vacations,preferring not toforce any major moves or over-commit totheir positions until January.On balance, this suggests thatbarring a major change in the overall landscape,sideways trade may persist from here over the near term.

EURO

Source: Bloomberg

BRITISH POUND

Source: Bloomberg

JAPANESE YEN

Source: Bloomberg

CANADIAN DOLLAR

Source: Bloomberg

AUSTRALIAN DOLLAR

Source: Bloomberg

NEW ZEALAND DOLLAR

Source: Bloomberg

---Written byIlya Spivak, Currency Strategist forDailyfx.com

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