On the downside a move below the 1.5995 level, would please the bears (see chart below). The trendline off the low on the same chart below comes in at the 1.5982 level.  This will also be a key level for the pair today.

The price has indeed fallen, but the price remains above the 100 hour MA at the 1359.50 level.  As a result, the technicals are still fighting between the 100 hour MA and resistance above on the daily chart (see below) against a series of resistance levels including the 100 day MA, the 50% retracement of the move down from the January 2011 high to the 2011 low, and the underside of the trendline (see chart below).

So although the there is some minor selling, the market remains contained with neither bulls or bears taking control.

The USDCHF broke above the 100 day MA today. If the price can close above this level today (0.9685), this will be the first close above the MA level since June 25th 2010. That is signficant and the price action has reacted accordingly today with prices moving steadily higher.

Of coures, breaks higher (or lower) still have levels to get through in order to keep the bullish momentum in tact. The next target level for the USDCHF is the 0.9773 level. This is the 61.8% of the December 2010 high to the low reached at the end of December.  Above that is the high from December at the 0.9783 level. A break of these levels should lead to further bullish momentum for the pair.

Looking  longer term, the pair has been depressed for some time and therefore has some room to run.  Catalyst include a stronger global/US economy that takes the pressure off the safe haven flows into the CHF.  This ultimately could lead to more significant upside potential.  The 0.9807 level is another upside level to get through (see daily chart below) and 0.9964 (50% of the move down from the Aug 2010 high) is another target. The 200 day MA is all the way up at the 1.0200 level.

Intraday, if the price can stay above the 0.9739 to 0.9747 level, the pair could sustain the upside momentum from an intraday perspective (38.2%  of the last surge higher). Please see the chart below.

Have a great weekend,

Greg Michalowski

The currency pairs covered in the report (in the order of review) include:

EURUSD
GBPUSD
USDJPY
USDCHF
USDCAD and
AUDUSD

If there is a pair that you would like for me to review, please send me an email at greg@fxdd.com

Thanks for your support and commitment to FXDD and have a safe and happy weekend,

Greg Michalowski

At the same time, banks borrowed sharply less from the ECB’s emergency 1.75% marginal lending facility, following the ECB’s special 13-day refinancing operation Thursday, the data showed.

Financial institutions across the 16-nation euro zone parked EUR43.619 billion overnight with the ECB at 0.25%, a rate that is below the overnight market rate, currently at 0.40%. The amount deposited with the ECB was down about EUR22.0 billion from the previous day.

However, the usage of the ultra-safe deposit facility is high compared with levels recorded last week, as banks are hoarding liquidity ahead of the Christmas holiday. If markets are functioning properly, banks use the ultra-safe facility to the tune of only a few hundred million euros.

ECB data also showed Friday that banks sharply lowed their use of the ECB’s emergency 1.75% marginal lending facility. Banks borrowed EUR229 million overnight from the ECB Thursday–an amount within the normal ranges–after requesting almost EUR3.5 billion Wednesday.

ECB website: http://www.ecb.int

-By Nina Koeppen, Dow Jones Newswires; +49 171 569 4340; nina.koeppen@dowjones.com

The government’s initial budget for the fiscal year beginning April 2011 contains Y92.412 trillion in total spending, exceeding the previous record of Y92.299 trillion for the current fiscal year due to increased debt-servicing costs, the government said.

Yet Prime Minister Naoto Kan’s cabinet kept the amount of new debt issuance at Y44.298 trillion, below this fiscal year’s Y44.303 trillion. It also held its main spending—or the sum of policy outlays and financial aid for local governments–at Y70.863 trillion, below this year’s Y70.932 trillion.

The government now faces the challenge of passing the budget through parliament by the March 31 end of this fiscal year.

The budget means that the government has satisfied the first-year requirement of a new fiscal overhaul plan created earlier this year that aims to balance the nation’s main budget over the coming decade. Although Japan’s fiscal state remains perilous, with the amount of planned debt issuance expected to exceed tax revenue for the third straight year, signs of the government’s commitment to fiscal overhaul may reassure investors in Japanese government bonds.

Japanese officials find it increasingly important to rein in the nation’s ballooning debt, which is now roughly twice Japan’s annual economic output. Europe’s deepening debt crisis has boosted their discomfort over their country’s still-growing liabilities.

While the ruling Democratic Party of Japan and its coalition partners can pass the main budget bill because of their dominance in the lower chamber, other budget-related legislation requires approval from the upper chamber, which is controlled by increasingly combative opposition parties.

The budget estimates the next fiscal year’s tax revenue at Y40.927 trillion, compared with an estimated Y39.643 trillion for the current fiscal year.

The government plans to use Y7.187 trillion in non-tax revenue, including one-time sources of revenue from separately managed government accounts as well as gains on the nation’s $1.1 trillion foreign reserves. Its heavy reliance on those sources has already raised concerns over the long-term feasibility of the fiscal reform plan.

The primary balance, a measure of how reliant Japan is on borrowing to pay for its policy spending, is Y22.7 trillion in deficit under the fiscal 2011 budget, the government said.

Few economists expect the Japanese economy to get much boost from the budget, in which debt-servicing costs and social security spending make up about 55% of total spending. Aid for local governments accounts for another 18.2%, and the rest is divided among various policy measures such as defense, public works projects, education and technology.

In the meantime, the government plans to boost the Ministry of Finance’s accumulated funding limit for currency-market intervention by Y5 trillion to Y150 trillion.

But government officials told Dow Jones Newswires that the move is mostly technical and doesn’t necessarily mean that more intervention is on the card. It is partly to make up for Y2 trillion spent by the government for a Sept. 15 yen-selling intervention, one of them said.

-By Takashi Nakamichi, Dow Jones Newswires; +81-3-6269-2781; takashi.nakamichi@dowjones.com

“Regarding fiscal consolidation, I don’t think it is anywhere near enough,” Kan said in a group interview with major media outlets after his Cabinet approved a record-high draft budget of 92.41 trillion yen for the next fiscal year.

“On such issues, I want to explain many things to the public after the turn of the year while setting the direction by putting the next two and three years into perspective,” he said, when asked about how he hopes to restore the country’s finances and the possibility of raising the consumption tax rate.

Kan said he may touch on part of his new vision when he holds his first news conference of 2011 on Jan. 4.

Kan, however, defended the Cabinet’s endorsement of the largest-ever budget for the year starting April, saying it was needed to revitalize Japan’s economy and society.

He called on opposition parties, which now control the upper chamber of parliament, to cooperate for the early passage of the budget during the regular Diet session due to begin in January.

On the diplomatic front, Kan reiterated his resolve to relocate the U.S. Marine Corps’s Futenma Air Station within Okinawa Prefecture in line with an accord struck in late May with Washington.

But he said Japan won’t put a deadline on settling the relocation issue as strong opposition persists in Okinawa.

“The U.S. side fully understands about this point,” Kan said, arguing that settlement of the issue will not be a prerequisite for his planned visit to the United States around next spring to release a joint statement with U.S. President Barack Obama on the two countries’ longstanding security alliance.

Kan also said he has yet to decide whether to replace Japan’s ambassador to Russia soon.

Government sources said Thursday that Japan is considering replacing Ambassador to Russia Masaharu Kono as early as January following his failure to obtain the right information beforehand on Russian President Dmitry Medvedev’s visit to a disputed island off Hokkaido in November.

On Tuesday, Japan will unleash a pack of economic data, including November consumer inflation and the unemployment rate. Neither numbers from the previous month had good news: Japan’s October core consumer-price index lost 0.6%, despite the inflationary effects from a new cigarette tax that month, while the jobless rate surprised economists by rising to 5.1% from 5.0%.

Still, the Japanese government is at least expecting improvement in 2011. A Cabinet Office report released this past week forecast core CPI to be flat for the fiscal year beginning April 1, 2011, in line with the government’s goal of ending deflation next year. Unemployment was also tipped to ease, with the Cabinet Office projecting the jobless rate to fall to 4.7%.

Thursday will see the other main piece of data for the week, as HSBC releases its monthly China manufacturing survey.

Last month’s HSBC Manufacturing Purchasing Managers Index rose to 55.3, up from the October survey’s 54.8, prompting concern that China could soon tighten its monetary and fiscal policy to prevent the economy from overheating. Any large gain in next week’s PMI results could spark similar concerns, with the stock market then likely to take a hit.

The coming week will also feature two central-bank decisions on Thursday.

According to separate reports by The Wall Street Journal and Reuters, Taiwan’s monetary chiefs are widely expected to hike their policy rate by 12.5 basis points (0.125 percentage point) to 1.625%, amid concerns of a real-estate bubble and other inflationary worries. But since the move is more or less priced in, it would be unlikely to affect stocks or currencies.

The Philippines’ Bangko Sentral also has a scheduled decision, but any policy change looks doubtful. A survey reported by Dow Jones Newswires cited all 10 economists questioned as seeing no rate hike at the coming meeting, due to a benign inflation outlook. Most of the economists expected the first increase to come as a quarter-point hike in the middle of 2011.

Meanwhile, if the past week is anything to go by, trading volumes will be light for the final week of the year, with many markets on break.

Australian and New Zealand bourses are scheduled to close Monday and Tuesday, with Hong Kong and the Philippines also closed Monday.

On Friday, holiday market closures are planned for Japan, South Korea, Indonesia, Thailand and the Philippines.

Wen also said he’s confident to curb China’s property prices to reasonable levels and the country will build more houses for low-income earners, according to the radio.

Beijing has introduced a series of measures since April to curb rising housing prices, including asking banks in September to stop issuing mortgages to home buyers that already own two or more properties.

-Wang Ming contributed to this article, Dow Jones Newswires; (86-21) 6120-1200; ming.wang@dowjones.com