Forex Exchange Morning Report

Market wrap

 

Mild risk aversion. The London and NY sessions saw little major news fl ow although there was enough to halt the new year’s rise in sentiment. Equities merely stalled, but the EUR fell and safe-haven bonds rallied. Fitch ratings agency said the ECB should ramp up its purchases of troubled European countries’ debt, particularly Italy’s, to avoid a cataclysm. There were also rumours France had been given notice of an imminent downgrade, subsequently denied by French officials. The S&P500 is currently down 0.1%, hugging a trend support line dating from 12 December. The CRB commodities index is down 0.4%, oil -0.5%, copper +0.9% and gold +0.4%. US 3mth Libor drifted 0.3bp lower to 0.577%, hinting at stabilisation in global funding markets for now. US 10-yr treasury yields signalled less comfort with the global outlook though, falling from 1.97% to 1.90% during the London afternoon. The 10yr auction was strong, awarded at a record low yield of 1.90%. The German 5yr government bond auction was also strong, suggesting safe-haven demand.

The US dollar index is around 0.5% higher. That is mainly due to EUR weakness, probably infl uenced by the negative implications of the Fitch comments above. It fell from London morning’s 1.2788 to 1.2662, a Sep-10 low. USD/JPY spiked to 77.04 and retreated to 77.86. AUD ranged, rising to 1.0328 before the EUR slide and then falling to 1.0263 before recovering to 1.0305. NZD ranged sideways between 0.7926 and 0.7964. AUD/NZD drifted slightly lower, from 1.2960 to 1.2940.

Economic wrap

German GDP growth was 3.0% in 2011, down from 3.7% in 2010. The Stats office indicated that Q4 might have seen the economy contract at about a 0.25% pace (official data not due till Feb), adding weight to the view that Euroland is already in recession.
UK BRC shop price index decelerated from 2.0% yr to 1.7% yr in Dec, further evidence that price pressures are diminishing. They should also fall sharply in the Jan report when last year’s VAT hike drops out of the annual calculation.
UK trade deficit widens from £7.9bn to £8.6bn in Nov, as exports fell 1.5% but imports rose 1.1%.

Market outlook

AUD/USD and NZD/USD outlook next 24 hours: here’s a full event calendar for markets today. The US Beige book of economic conditions will be released shortly and China’s infl ation reading is this afternoon. Most important will be tonight’s ECB meeting, no new stimulus expected but the possibility of marketdisappointing comments. Italian and Spanish bond auctions will be watched. AUD remains capped by 1.0385 resistance and is biased to test 1.0200 today. NZD is testing 0.7965 minor resistance but a move beyond 0.8000 today is unlikely.