US Dollar selling seems to be running out of steam

The FX markets have seen plenty of volatility over the last 24/48 hours and it seems as though the theme of selling US Dollars during this time may be running out of steam. Strong US housing market data contrasted with a weaker Philly Fed survey yesterday, but the strength of the housing figures comfortably outweighed the industrial survey.

In other foreign currency transfer news, the Euro had a better day against Sterling, helped by the poor CBI industrial trends total orders which dropped to -16 in January from -3 in December. The bigger picture for GBP/EUR are the issues surrounding Eurozone sovereign debt risks and the fragility of recoveries which could see both Sterling and the Euro suffer in coming weeks, particularly if the financial markets are expecting some action to deal with inflation pressures.

Today the key release in the Eurozone is German IFO survey for January. After the stronger ZEW figures earlier in the week, the chances are that this survey will also be better than expected, which would suggest that the Germany is on for faster growth.

However, all the signs are that growth slowed in Q4, in spite of stronger activity surveys, and that the momentum will prove difficult to maintain in 2011.

The Euro may see some initial gains following this data, and we may also see equities rise on the back of the release, but don't expect moves to last throughout the day.

In the UK, the retail sales report is expected to outline weak December activity today on account of cold weather and snow disruptions. Figures released earlier in the month from the British Retail Consortium (BRC) showed an annual 0.3% decline in same-store sales in December, led by non-food sales.