Markets cautious ahead of US data session

The US dollar has lost some ground
after data releases overnight even though the corporate earnings
data from the US was positive. US house prices came in better than
expected as well, however the markets seem to be trading the
negative consumer sentiment in the US. US consumer sentiment came
in at 58.6 though they expected the figure to be closer to 64.0.
Risk appetite seems to be back on, ever so slightly, as investors
are cautious ahead of the FOMC meeting where the Federal Reserve
are expected to outline interest rates and stimulus packages,
though it is widely expected that they will continue to buy assets
until next year. We also expect US GDP data which is out before the
meeting, which would provide a more clear direction to the
markets.

From Europe, German consumer
confidence data, which seems to be on a high in the new year, has
propped up the Euro to an 11 month high against the Greenback as it
currently is trading over the 1.35 level. Spain’s recession has
deepened more than expected as per estimates in the fourth quarter
as the government struggles to rein in the euro region’s
second-largest budget deficit. In the 3 months to December, GDP
fell 0.7%as The European Commission has signaled that it may
recommend easing Spain’s budget goals as unemployment in Spain
creeps to its highest level.

A weak USD has seen the pound
recover, albeit temporarily, back up to 1.5750 after it reached a 5
month low yesterday to 1.5675. However, UK growth concerns continue
to build pressure on Sterling. Though the BOE issued a statement
saying the economy may not reach growth levels of 2% for another 3
years but in the long term, they remain optimistic that the economy
should return to earlier growth levels. The comments not backed by
any form of data fails to instil any confidence in the markets as
the pound could face further weakness in the first half of the
year.