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FXstreet.com (Barcelona) - Emmanuel Ng of OCBC Bank´s Treasury research and Strategy team has taken a look at the FX markets prospects for the year ahead.

Starting with the FX Sentiment Index (FXSI), he expects that markets will remain under an overhang from the US fiscal cliff at the onset of the year, with signs of underlying unease with respect to the US related risk indicators into the end of 2012. However, pending headline flow out of the US, he expects markets to start the year in a risk on environment.

When looking at global manufacturing activity he notes that the global recovery looks nascent at best, noting that global central banks, bar none, renewed their dovishness into 2012 year end. However, he does see some light at the end of the tunnel, noting slightly unsteady gait analysis, but the global outlook is expected to continue to find its footing in 2013.

He sees nascent support for overall commodity prices from global recovery prospects but a high conviction move may remain waiting in the winds pending further evidence. Looking at FX volatility, he believes that the substantial monetary and contingency backstop provided by global authorities is likely to continue to contain tail risks, encouraging yield seeking behaviour.

Focusing on the Euro, Ng writes "Any EUR gains are expected to be measured given the inherent structural impediments (e.g., fiscal constraints, monetary accommodation)." Looking at Yen, he continues to explain, "Macro realities and the intent to aggressively loosen monetary conditions further bode ill for the yen. As such, the yen's broad valuation may continue to mean revert." Moving to AUD, he notes that "A slowing Chinese economy and moderating Australia terms of trade have been keeping the AUD constrained. For 2013, look towards further confirmation of the global (China) economy for AUD underpinnings."

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