Fixing flows drove the euro sharply lower against the U.S. dollar. Up until the release of U.S. consumer confidence numbers, the EUR/USD held onto its recent gains. However around 11am NY Time, the EUR/USD began to fall aggressively and within half an hour, the currency pair dropped close to 80 pips. There was no news or economic data released around that time and the move cannot be attributed to the confidence numbers since the EUR/USD stalled for approximately an hour after the release. Once or twice a day, banks will provide a fixing rate for market participants. This rate may be used to mark option trades, future or forward contracts and other things such as tourist rates. The fix rate is then considered the benchmark for the currency pair that banks and other vendors will use for their customers that day. Importers and exporters may also settle contracts based upon the fixing rates. Therefore typically ahead of fixings or option expirations (which usually occur around 12pm NY Time or 5pm London Time), there can be a lot of volatility in the dollar which is exactly what we witnessed today. German consumer prices were released this morning and based upon the latest report, inflationary pressures increased significantly in the month of December. Meanwhile the Swiss Franc ended the day virtually unchanged against the euro and marginally weaker against the dollar despite a sharp rise in the UBS Consumption Indicator. According to the report, consumer spending rose to the highest level since September 2008 confirming that the recovery in Switzerland is underway. Perhaps this may be part of the reason why the Swiss National Bank has been missing in action over the past 2 weeks. The KoF leading indicator report is due for release tomorrow and we expect similar strength as the UBS report.
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