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Actual Forecast Previous Revision Tue Jan 31 4:45 NZD Building Consents m/m -6.4% 20:30 CAD GDP m/m 0.2% 0.0% 22:00 USD CB Consumer Confidence 68.4 64.5 Wed Feb 1 8:00 CNY Manufacturing PMI 49.8 50.3 15:15 CHF Retail Sales y/y 1.6% 1.8% 16:30 GBP Manufacturing PMI 50.2 49.6 20:15 USD ADP Non-Farm Employment Change 193K 325K 22:00 USD ISM Manufacturing PMI 54.6 53.9 Thu Feb 2 4:45 NZD Employment Change q/q 0.2% 4:45 NZD Unemployment Rate 6.6% 7:30 AUD Building Approvals m/m 2.3% 8.4% 7:30 AUD Trade Balance 1.23B 1.38B 16:30 GBP Construction PMI 53.0 53.2 20:30 USD Unemployment Claims 371K 377K 22:00 USD Fed Chairman Bernanke Testifies Fri Feb 3 3rd-8th GBP Halifax HPI m/m 0.1% -0.9% 16:30 GBP Services PMI 53.6 54.0 19:00 CAD Employment Change 23.5K 17.5K 19:00 CAD Unemployment Rate 7.5% 7.5% 20:30 USD Non-Farm Employment Change 156K 200K 20:30 USD Unemployment Rate 8.5% 8.5% 22:00 USD ISM Non-Manufacturing PMI 53.2 52.6 US Dollar a Natural Short but also a Fundamentally Loaded Currency By John Kicklighter, Currency Strategist 28 January 2012 04:14 GMT Fundamental Forecast for the US Dollar: Bearish The dollar has been hammered over the past two weeks. A lot of attention is paid to the 10-day rally from GBPUSD, the EURUSD·s near five percent rally over the past two weeks or AUDUSD returning to three-month highs. There are a lot of fundamental arguments to be made for their individual performance, but the simplest explanation is generally the correct. And, across these pairs, the common denominator is a weak greenback. To form an assessment of the dollar itself, we can look to the Dow Jones FXCM Dollar Index which failed to make the move to fresh 12-month highs and instead tumbled over these past two weeks to lows not seen since November 14th. What is driving this plunge? The answer to that question will help us to answer where we go (and how quickly) from here. If we were to assess the situation by analyzing the most potent fundamental driver first ² underlying risk appetite ² we would label this nascent bear trend a dominant trend, but we would also have to be highly skeptical of follow through. As the market·s liquidity provider, the dollar represents a ¶last resort· harbor for capital when there are serious concerns about the stability of the broader financial markets. That requires rather extreme conditions to keep the dollar bid. Currently, the S&P 500 (my favored benchmark for basic sentiment) is nearly six-weeks into a bull run. That said, volume behind this move (a measure of conviction) has trended towards its lowest levels since 1999 (using a three-month average). Set that against the building evidence of an impending global slowdown (if not recession), a deepening European crisis and protectionist agendas across the largest financial centers; and threat of a downdraft in risk is high. However, the experienced fundamental trader knows that what ¶should· happen and what does happen frequently deviate for markets that run on speculation. We have absorbed clear signs of trouble (Euro Zone downgrades, poor 4Q earnings and weakened global GDP figures) with no change in bearing from the riskiest assets or the most stoic. To make the most effective dollar collapse or rally, a clear and strong bearing on market-wide sentiment is needed. Yet, it would be difficult to truly encourage a lasting sense of confidence given the fundamental headwinds that a building. A move towards greater stimulus would provide temporary fuel, but the half-life of such programs has grown shorter and shorter with each new effort. That said, there seems to be a growing expectation for the Fed to bestow a QE3 on the world sometime in the early second quarter; but such efforts are usually made when markets are under significant pressure. On the opposite side of coin, there is plenty of reason to deleverage but just not the will. Since specific catalysts seem to be falling short of triggering a change in tone, we wait for the speculative drift to run out of steam and mass risk aversion to kick in once again. That means, we should lower our expectations that specific indicators over the coming week (like Friday·s NFPs) will mark a definitive turning point. Another clear dollar driver that has separated itself further and further from traditional risk trends to keep an eye on is the health of the euro. As the greenback·s most liquid counterpart and the most prominent threat to global capital flow, this particular foil can offer immediate buoyancy or exact weight to the greenback. That is just as unstable a catalyst as risk trends themselves. The shared-currency·s rally has contradicted a growing wealth of bearish evidence. All told, we should not grow too comfortable with the dollar bear trend. ² JK Euro Takes out Highs, Aims for $1.35 ² Does Rally Have Staying Power? By David Rodriguez, Quantitative Strategist 28 January 2012 03:42 GMT Fundamental Forecast for the Euro: Bullish It is shaping up to be a make-or-break week for the resurgent Euro as a key European summit and US employment data headlines a busy week of event risk for forex markets. To get a sense for what we can expect, we take a look at what has happened thus far. The Euro started this past week noticeably lower, but the EURUSD never looked back as it finished almost exactly at fresh multi-month highs through Friday·s close. The coming days could prove pivotal for the recently fast-rising Euro exchange rate, and it is little exaggeration to say that the coming days may decide whether the EURUSD stages a much larger recovery. A European summit on Monday could set the pace for the Euro as we enter the new month of February, while Friday·s US Nonfarm Payrolls figures could likewise influence the Euro and broader financial markets. Markets are tired of listening to Angela Merkel, Nicolas Sarkozy, and fellow Euro Zone leaders commit to vague action plans for the sake of the Euro Zone. In other words ² talk is cheap. The focus remains on whether Monday·s summit nails down commitments on the preliminary agreements set forth in the pivotal December meetings. Lack of real solutions could potentially derail the Euro·s sudden recovery. The later US Nonfarm Payrolls report is always difficult to predict, and it is even more difficult to forecast how markets will react to the data. That said, a wave of stronger-than-expected US economic news leaves forecasts on the high side and there is ample room for disappointment. It seems

that investors are growing increasingly complacent as the US S&P 500 trades steadily towards multi-year highs. Such strength in financial market risk appetite has reduced demand for the safe-haven US Dollar and boosted the relative attractiveness of the Euro. We believe that a sharply worse-than-expected NFP data print could have an important effect on the S&P 500. Given strong crossmarket correlations, a bad labor numbers could potentially spark USD strength. In the absence of major fundamental shifts, recent trends favor further Euro recovery versus the US Dollar. This isn·t to say that the Euro Zone crisis is in any way resolved; the opposite may be true as Greece faces the real short-term risk of a hard default. Yet the financial and popular media is saturated with stories about threats to the Euro Zone and to the single currency itself. In other words, the Euro may have reached a bearish sentiment extreme and is currently seeing an important near-term recovery. One only needs to look at CFTC Commitment of Trader data to see evidence of a Euro sentiment extreme. Non-commercial futures traders, typically large speculators, are their most netshort Euros against the US Dollar in history and by a wide margin. Sentiment extremes and market turns are only clear in hindsight, but continued EURUSD short covering could potentially take the single currency to further highs. Now that the Euro has broken above key resistance at $1.3198, there seem to be few hard price levels until December·s high of $1.3548. To be absolutely clear: we are still quite bearish on Euro fundamentals and believe the longer-term downtrend remains the most important. Yet markets like to overshoot in both directions, and there are real risks that the EURUSD could shake out further bears before resuming its downtrend. Needless to say, the coming week could prove pivotal for the resurgent Euro exchange rate. ² DR Japanese Yen Strength At Risk As Intervention Threats Resurface By David Song, Currency Analyst 28 January 2012 01:15 GMT Fundamental Forecast for Japanese Yen: Neutral The USD/JPY dipped below 77.00 amid the recent strength in the Japanese Yen, but the low-yielding currency may come under pressure next week next as market participants see the government ramping up its efforts to weaken the exchange rate. Indeed, Japanese Prime Minister Yoshihiko Noda encouraged the central bank to take ¶bold· measures as the marked appreciation in the Yen dampens the prospects for an export-led recovery, and it seems as though the government will put additional pressure on the Bank of Japan to sell the Yen as the fundamental outlook for the world·s third largest economy deteriorates. After maintaining its current policy this month, BoJ Governor Masaaki Shirakawa pledged to closely monitor the local currency, stating that the negative impact of a strong Yen outweighs the benefits, and the central bank head may show an increased willingness to directly target the exchange rate as the protracted recovery dampens the outlook for price growth. However, as the board sticks with its asset purchase scheme, we may see the central bank continue to sit on the sidelines, and it looks as though the BoJ will endorse a wait-and-see approach during the first-half of the year as policy makers expect the economy to ¶gradually return to a moderate recovery path· in 2012. In turn, we may see Japan·s Ministry of Finance move on its own to dampen the appeal of the Yen and the government may aggressively sell the local currency in order to balance the risks surrounding the region. Indeed, retail currency traders are heavily short the Yen as the DailyFX Speculative Sentiment Index for the USD/JPY stands at 13.26, and market participants may continue to build up long dollar-yen positions next week as speculation for a currency intervention picks up. As we have yet to see a test of near-term support (76.50), the USD/JPY still has some room to the downside, but we may need a move below 76.00 to see threats of a currency intervention materialize. ² DS British Pound Looks to EU Debt Crisis Fix Efforts for Direction Cues By Ilya Spivak, Currency Strategist 28 January 2012 03:28 GMT Fundamental Forecast for British Pound: Neutral Broadly speaking, the British Pound continues to trade with overall risk sentiment trends, where the tug of war between an apparent pickup in the US recovery and the lingering Eurozone debt crisis continues to dominate price action. Traders got a bit of encouraging news on the growth front last week after the Federal Reserve made it loud and clear they do not intend to risk undercutting cautiously accelerating growth with a premature unwinding of accommodative monetary policy. Indeed, Ben Bernanke and company extended their pledge to keep interest rates low by about 18 months, from mid-2013 to the end of 2014, and seemingly went out of their way to remind investors that additional asset purchases (QE3) were on the table. A risky asset rally amid hopes that an increasingly chipper US economy will help offset downturns in Europe and Asia expected this year would have room to flourish if not for ever-present fears that a mismanaged default within the common currency area will set off another global meltdown akin to that of 2008. With this in mind, the spotlight is now on EU officials as they attempt to complete the dual objectives of sorting out the now almost-mythical ´fiscal compactµ meant to institutionalize budget discipline the region and securing agreement on private-sector involvement (PSI) in the second Greek bailout, where the government and banks have locked horns over the coupon rate on new longer-dated bonds to be swapped in for outstanding ones. On Friday, European Economic Affairs Commissioner Olli Rehn said that a deal on PSI will be done ´if not [that day], then over the weekend.µ While markets have seen their share of bombastic pronouncements fizzle before and would normally take such pronouncements with a grain of salt, the jittery mood prevailing at present is likely to mean that a failure to live up to this timeline will see risk aversion begin to perk up across global exchanges, an outcome threatening to weigh on the British Pound. Needless to say, the reverse result is likely to start the week of on a positive note, which would be expected to be supportive for the UK currency. From there, the focus turns to the EU leaders· summit beginning on Monday. Policymakers will need to complete the operational details of the fiscal compact by the conclusion of the sit-down and convince the markets they·ve established a framework that can be implemented swiftly while still being sufficiently tough on offenders to be credible. Here too, success is likely to translate into gains for Sterling as it follows the spectrum of risky assets higher, and vice versa. On the domestic data front, the January set of PMI figures headlines the docket. Manufacturing performance is expected to narrowly improve, returning to a neutral setting having after the sector contracted for the preceding three months. Construction- and service-industry growth is forecast to slow however. The trio of housing surveys from Hometrack, Nationwide and Halifax are also on tap. Another hefty dose of US data is also on tap, with ISM figures and the all-important Nonfarm Payrolls print warranting particular attention. ² IS Gold On Pace for Strongest Month Since August Ahead of Fed Testimony By Michael Boutros, Currency Strategist 28 January 2012 01:17 GMT Fundamental Forecast for Gold: Neutral Gold prices surged this week with the precious metal advancing 4.3% on the back of the Fed·s pledge to anchor interest rates at record lows through late 2014. Year-to-date the yellow metal has now advanced nearly 11% which puts it on pace for the fourth largest monthly rally in 10 years. The last time gold posted such an advance was in August when prices surged 12.25%. Interestingly, a look at historical data suggests gold may go on the defensive next month with two of the past three record monthly advances posting a sharp decline of 7% or more on an open-to-close basis the following month. That being said, there are other economic factors at play here keeping prices buoyed with the FOMC·s decision on Wednesday shifting the tide on gold. In the subsequent press conference after the FOMC interest rate decision, central bank chairman Ben Bernanke cited that there was a ´number of factorsµ keeping inflation under pressure with expectations that the slowing global economy would hold down prices. However a look at core inflation prices (ex food & energy) over the past few years shows that consumer prices have remained sticky with the December core CPI data holding at its highest level since October of 2008 at 2.2%. And while headline inflation figures continue to suggest price growth remains subdued, the elevated level in core prices may continue to fuel flows into gold as a store of wealth amid a prolonged ZIRP

(zero interest rate policy), further depreciation in the dollar, and concerns regarding the core rate of inflation. Looking ahead to next week, traders will be eyeing the Henry Hawkins testimony where chairman Bernanke will speak before congress regarding the state of the economy. While Bernanke is likely to reiterate his remarks from last Wednesday·s press conference, the barrage of questions that will be posed to the chairman could bring about fresh comments on the economy with investors lending a keen ear to the testimony as the Fed maintains a dovish tone for future monetary policy. Talks of further quantitative easing are likely to keep gold well supported as Fed members continue to reaffirm markets that the central banks is ready and willing to continue to ease monetary policy should conditions deteriorate further. Gold broke above key trendline resistance dating back to the all-time highs put in on September 6th on Wednesday after the FOMC interest rate decision with the precious metal closing out the week just above the 76.4% Fibonacci extension taken from the September 26th and December 29th troughs at $1730. Interim support rests at the 61.8% extension at $1690 backed by former trendline resistance, now acting as support. Topside targets are eyed at $1750 backed by $1780 and the 100% Extension just below the $1800-mark. Look for gold to possibly come under pressure early next week, with the prices likely to remain well supported heading into February. ²MB Canadian Dollar Outlook Turns Bearish By Christopher Vecchio, Currency Analyst 28 January 2012 01:21 GMT Fundamental Forecast for Canadian Dollar: Bearish The Canadian Dollar had a modestly strong week, climbing 1.1 percent against the U.S. Dollar, though it lagged the other commodity currencies. Its commodity comrades, the Australian and New Zealand Dollars, gained 1.63 percent and 2.18 percent, respectively. The Loonie was supported by a slightly firmer crude oil, which was up 1.63 percent on the week. The trend is clear: without the support of broader markets, there was little reason for the Canadian Dollar to gain against the U.S. Dollar. Data this past week was bullish for the Canadian Dollar, but only marginally. Leading indicators expanded by 0.8 percent in December, a tenth of a percentage less than November·s positively revised figure. Retail sales for November were better than expected, though the growth was less than the prior reading. Thus, in both cases, the data was positive, just not as good as the prior month; is this a sign that the Canadian economy is facing some headwinds? Only time will tell, though. Looking ahead, the event docket features two considerable data prints that will stoke volatility across Loonie-based pairs during the first week of February. On Wednesday, monthly growth figures are due, with the November GDP reading forecasted to show a slight 0.2 percent bump. On a year-over-year basis, growth is expected to have declined to a modest 2.3 percent pace. Considering that Canada is the number one exporter of oil to the United States, and now that the United States is a net exporter of oil, the Canadian economy might see a slowdown in this respect. Volatility is likely to be high as well on Friday, when the monthly Canadian labor market reading is due. The Canadian labor market is forecasted to have improved slightly in January, adding 22.0K jobs, up from the 21.7K jobs added in December. The net effect is expected to be minimal, with the unemployment rate forecasted to hold at 7.5 percent, according to a Bloomberg News survey. If there is one thing to take away from this piece, note the rhetoric employed: not much exciting data is due, and there is nothing substantial neither in the rear view mirror nor on the road ahead to keep the Canadian Dollar from depreciating against the U.S. Dollar. Without the further support of global risk trends, the coming week could be rough for the Loonie. ²CV Australian Dollar Remains Tethered to Global Risk Trends By Christopher Vecchio, Currency Analyst 28 January 2012 01:18 GMT Fundamental Forecast for Australian Dollar: Neutral The Australian Dollar posted another strong week against the U.S. Dollar, gaining 1.60 percent the past five days. Quizzically, despite the Australian Dollar being the highest yielding major currency that we track at DailyFX, it was not the best performer this week; that title goes to the Swiss Franc. This is a clear indication that there are other fundamental factors weighing on the Australian Dollar, and that in a risk-off environment ² one that may materialize in the coming days given the technical overreach of equity markets ² the Aussie is due for a major correction. A tenet of technical analysis is that a move by an asset (commodities, currencies, equities, etc) is considered to be ¶technically strong· if there is strong volume supporting the move. Such has not been the case, with volume on the S&P 500 barely holding near its 20-DMA for much of January (it is even lower if you remove the last week of December from the equation). With the S&P 500 now up 4.68 percent for the year, I would not call the move higher constructive. And, with a statistically significant +0.889 correlation with the S&P 500, the AUD/USD·s move has not been constructive either, in my opinion. Moving on to event risk next week, there is not much significant data on the docket that could propel the AUD/USD through the 1.0700 figure. Two pieces of data pique my interest. On Wednesday, building approvals from December are due, and the forecasts are not pretty. Approvals are expected to have contracted by 22.1 percent on a year-over-year basis. Fitting this in with the bigger picture, Australian house prices declined ten out of eleven months in 2011, with November being the exception. Similarly, house prices dropped at least 0.5 percent or more on five different occasions last year. This is a major concern and we will continue to monitor how the Reserve Bank of Australia responds to this; I expect at least one more rate cut this year, though two are not out of the question if global demand for base metals (aluminum, iron ore) slow dramatically. Also due on Wednesday is trade balance data from December. Like the preceding disappointing housing data, the trade balance figure is not supportive of a stronger Aussie either. The headline figure is expected to have contracted to 1200M from 1380M, a continuation of the decline in Australia·s trade balance that started in August. If this is the case, which is most likely is, it is a clear indication that Australia·s trade with emerging markets, in particular China, is slowing as well. Another weak figure could give credence to the RBA·s desire to cut rates further, as market participants are pricing 92.0-basis points out of the Australian Dollar over the next 12months. ²CV New Zealand Dollar Overbought, Fundamentals To Fuel Major Correction By David Song, Currency Analyst 28 January 2012 03:46 GMT Fundamental Forecast for New Zealand Dollar: Bearish The New Zealand dollar extended the advance from earlier this month to mark a fresh yearly high of 0.8249, but we may see a short-term correction in the week ahead as the high-yielding currency remains heavily overbought. As the rise in risk-taking behavior props up the kiwi, the NZD/USD may continue to retrace the decline from the previous year, but we should get a major reversal in the exchange rate once the relative strength index falls back below 70. However, a near-term correction in the NZD/USD may turn into a full blown downtrend as the weakening outlook for the isle-nation instills a bearish forecast for the kiwi. Indeed, the Reserve Bank of New Zealand struck a neutral tone for monetary policy as the central bank sees delays to the rebuilding efforts from the Christchurch earthquake, and it seems as though the RBNZ will keep the benchmark interest rate at 2.50% for most of 2012 as the ongoing turmoil in the world financial system heightens the risks surrounding the region. As the RBNZ talks down the risk for inflation, Governor Alan Bollard may continue to resist calls to scale back the emergency rate cut from back in March, and the soft outlook held by the central bank is
likely to dampen the appeal of the high-yielding currency as interest rate expectations falter. As the fundamental outlook for the region deteriorates, the marked appreciation in the NZD/USD is likely to be short-lived, and the recent run up certainly provides a good opportunity to short the pair as we expected to see the high-yielding currency face headwinds over the near-term. Nevertheless, as the economic docket for the following week remains pretty bare, risk trends are likely to heavily influence price action over the coming days, and we may see the New Zealand dollar appreciate further next week should market participants continue to ramp up their appetite for higher yields. In turn, our bearish call for the NZD/USD may take some time to pan out, but we expect to see lower prices in 2012 as the central bank turns increasingly cautious towards the economy. - DS

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