FX Highlights

• Equity Indexes lose ground in Europe, while stock futures in the US point to a lower open. Financial Markets were roiled by a surprising announcement from President Obama looking to limit bank size and restrict risk taking practices within US banks. The announcement calls for banks not to engage in proprietary trading, private equity, and or hedge fund investing with principal capital. For some financial institutions like UBS prop trading accounts for a minimal amount of revenue, however firms like Goldman Sachs derive a large component of their profit from these operations. Investors sold off shares in fear that the new reform would limit profitability and reduce overall market liquidity. The initial reaction for the USD was negative, creating room for the Euro, Gbp, and other major currency pairs to recover following a recent selloff. The easing in dollar strength was short lived, causing majors like the Gbp, Eur, and Cad to decline sharply
• In Europe, UK retail sales rose 0.3% an increase that did not meet expectations of a 1.1% gain by a Bloomberg News Survey. These figures may serve as a reflection in consumers tightening spending habits and may foreshadow concerns regarding the UK GDP figure set to be released next week. UK GDP is expected to have increased 0.4% in the fourth quarter
• The Eurozone economy received some positive news with French business confidence rising to 92 versus 88 in the prior quarter and an estimate of 90 by Bloomberg News Survey. The French economy has shown some resilience with a modest 0.3% growth rate in the last two quarters. The Finance Ministry raised its 2010 growth forecast to 1.4% creating a clear distinction within the EU of countries with stabilizing economic conditions versus some of the other struggling members
• US investors are preoccupied with the "Volcker Rule" calling for a clear division between traditional bank services and proprietary trading activity. Some are calling this reform a return of the "Glass Steagall Act" which required a separation between consumer/commercial banking and capital markets businesses. Policymakers in the US are calling for a level playing field from a regulatory perspective, placing pressure on other G20 members to adopt similar policy. The UK has expressed some agreement with the Obama's plan, but other leaders like Angela Merkel of Germany prefer a unified plan involving the input of all G20 countries as opposed to unilateral policies

Upcoming Events:

• CA: Canada Budget Balance
• US: Existing Home Sales