The forex market remains quite volatile with small trading volumes due to the closing position at end of year and the bank holidays around the world which are affecting the Sterling, the Australian Dollar, the Canadian Dollar and the New Zealand Dollar primarily.

Following the increase of the interest rates in China, gold fell by 0.7% but managed to bounce back to the opening price of $1384. Low trading volumes are expected to dominate during the rest of the week because of various holidays. London SE will be closed also on Tuesday while Tokyo will be closed on Friday.

The EURUSD rate traded in low volumes of transactions for some time because the holidays seem to have affected the market more this year. The slow movement of the exchange rate targets the low of $1.2970 but if that level breaks then the rate enters to uncharted territory and it is unclear by the fundamental analysis to determine the trend that the pair will follow.

The EURUSD is currently trading at $1.3161 close to the high of the day while the USDJPY is currently at 82.78 Yen. The EURGBP rate stands at 0.8517 and the GBPUSD at $1.5448.

According to rates derived from xe, the Euro is currently trading close to $1.3260, with an increase of 0.13%, while earlier was maintained for some time over the $1.33, reaching up to the level of $1.3359. Against the forex rates of the Yen, the Euro records gains of 0.14% at 111.697 Yen and against the British pound moves around to 0.8518 GBP with 0.55% gains. Compared to the Swiss franc Euro moves downward to 1.2732 francs.

Analysts believe that the phenomenon of “shallow” markets as we approach the end of the year could be a negative factor for the European common currency. In recent weeks many companies have already closed their books for the year and have registered gains, contributing to the very “shallow” market. This, according to analysts, is bad for the foreign exchange value of the Euro which is “immersed” in sovereign debt crisis and is expected to have very high volatility.

“If there is a currency that is possible to escape from the narrow range at the end of the year this is Euro and the move will be downwards”, said at Dow Jones Newswires Mr. Vassili Serebriakov, foreign exchange analyst at Wells Fargo in New York.

Moreover, while the forex rates of the Dollar decline against the Euro and the Swiss franc is stable against the Yen and the Sterling while analysts talk about a new rise of the forex trading vaule of the dollar. “The fiscal policy and the powerful economic momentum were the reasons that boosted the dollar in the last 6 weeks. The U.S. currency has responded to the rising interest rates and we are expecting a stronger momentum and higher interest rates to support a more rapid rise in the dollar in the first half of 2011”, analysts of RBS stated.

The USD dollar is trading marginally on profit versus the Yen and Sterling at 83.93 yen and at $1.5630 against the sterling respectively. Against the Swiss franc the dollar records a decline of 0.40% to 0.9604 francs.

The euro traded at $1.3436 with gains of 0.34% against the U.S. currency, while in yesterdays trading in New York it strengthened more than 1.2%.

Over the weekend, the German Finance Minister reiterated that his country would support the European Union and the common currency, but yesterday Wolfgang Schaeuble stressed that the creation of Eurobonds would have a negative long-term effect on the currency.

“Germany is – at present – expressing conflicting views”, said Michael Woolfolk, analyst at Bank of New York Mellon. He also stresses that forex traders are more focused on the statements of the weekend and leave the door open for strengthening the financial unification of Europe.

Regarding yesterday’s comments by the German Ministry of Economy, Mr. Woolfolk he stated that he believes that the tougher stance may be part of a negotiating tactic to ensure maximum consensus by the European member-states.

On other rates, the forex rates of the Euro are stabilizing against the forex rates of the Yen and the British pound at 111.776 Yen and at 0.8456 GBP respectively. The USD is trading at 83.26 yen with minor losses of 0.125 against the Japanese currency, while in relation to the sterling, the U.S dollar declines to $1.5877 per pound.

Most market players believe that, despite the concerns, Tokyo authorities will not intervene in the currency market, at least until the dollar falls to a 15 years low against the Japanese currency. The Japanese Finance Minister Yoshihiko Noda said that authorities are closely monitoring the progress of the exchange rate.

Officials of the Japanese government are worried whether the strength of the yen is undermining the export business, thanks to which the economy still managed to emerge from the recession, and intensify deflationary pressure after 16 consecutive months of decline in consumer prices.

At the same time, analysts polled by Reuters discern little room for further rise of the yen against the dollar, but the drift will take place at a slower pace due to the pressure on the dollar. The analysts expect the US Dollar – Japanese Yen to rise to 86.8 in one month, to 92 yen in six months and 97 Yen in a year from now.

They also consider that it will soon reverse the rally of the euro against the dollar as the government austerity measures and sluggish growth are haunting the single currency of the European Union. The analysts expect the euro at 1.20 against the dollar over the next twelve months, close to a four-year low (less than 1.19) and having moved away from the high quarter of Tuesday which marked 1.32.
Compared with the previous survey, analysts have revised their estimates upward for the Euro first year at 1.30 against the dollar in a month and to 1.25 in three months from now. As for the pound, they are providing retreat at a slower pace in the 1.57 mark against the dollar in a month and $1.50 within the next twelve months.

The U.S. currency rose 0.3% against the Malaysian ringgit at 3.3275. The Australian dollar fell 0.4% to 1.2978 against the New Zealand dollar and 0.5% against the yen, reaching 82.42. Today the Federal Reserve will announce its decision on interest rates, which according to forecasts by analysts will be maintained at low levels near zero. The euro traded near the lowest levels of 16 months against the Swiss franc before the announcement of Germany on investor confidence, which probably fell for the sixth month; a strong sign that Europe’s largest economy struggles to recover. The euro touched 1.4519 per Swiss franc from 1.4524 yesterday.