Forex Market Update: EUR Steady At 2012 Lows In Asia, The Calm Before (Another) Storm?

 

Economic Data Highlights

• CA Nov. Int'l Merchandise Trade out at +C$1.07 bln vs. –C$0.5 bln expected and revised –C$0.49 bln prior
• US Dec. Import Price Index out at -0.1% m/m, +8.5% y/y vs. -0.1%/+8.4% expected and 0.8%/10.1% prior resp.
• US Nov. Trade Balance out at -$47.8 bln vs. -$45.0 bln expected and revised -$43.3 bln prior
• US Jan. Michigan Confidence out at 74.0 vs. 71.5 expected and 69.9 prior
• NZ Dec. Food Prices out at +0.2% m/m, unchanged from prior
• AU Dec. TD Securities Inflation out at +0.5% m/m, +2.4% y/y vs. -0.1%/+2.1% prior resp.
• JP Nov. Machine Orders out at +14.8% m/m, +12.5% y/y vs. 5.1%/3.8% expected and -6.9%/1.5% prior resp.
• JP Dec. Domestic Corp. Goods Orders out at +0.1% m/m, +1.3% y/y vs. -0.1%/1.2% expected and flat/1.6% prior resp.
• UK Jan. Rightmove House Prices out at -0.8% m/m, +0.4% y/y vs. -2.7%/1.5% prior resp.
• AU Nov. Home Loans out at +1.4% m/m vs. 1.0% expected and revised 0.8% prior
• AU Dec. ANZ Job Advertisements out at -0.9% m/m vs. revised +0.1% prior

THEMES TO WATCH - UPCOMING SESSION

 

• JP Consumer Confidence (0500)
• GE Wholesale Prices (0700)
• Swiss PPI (0815)
• Norway Trade Balance (0900)
• EU ECB's Draghi to speak (1800) 

Market Comments

The EUR steadied in quiet Asia trade after a hefty u-turn on Friday. Today's US holiday likely played a part in the moribund trade while data was confined to second-tier releases.

In Japanese data, core machinery orders bounced back by an impressive 14.8 percent in November, more than double market expectations for a 5.1 percent increase and retracing most of the m/m declines seen in September and October. The data appears at odds with the last tankan survey where large manufacturers turned pessimistic for the first time in six months.

From Australia, lower mortgage rate saw home loans continue their slow, steady grind higher in November with the 1.4 percent m/m increase marking the eight straigth gain in a row. However, financing levels still remain at relatively weak levels on the back of stretched housing affordability and households' desire to pay down debt. The Australian labour market showed further signs of contraction as ANZ job advertisements fell 0.9 percent m/m in December. This perhaps gives us an indicator for Thursday's employment report which is expected to show that 10k jobs were added in December, a rebound from November's decline of 6.9k.
Any short-term EUR bulls looking for an extended EUR retracement were given a jolt late on Friday as S&P waged an assault on Eurozone credit ratings with downgrades to 9 Eurozone countries, France among them, while affirming Germany's AAA rating. Cyprus, Italy, Portugal, and Spain were slashed by two notches, long-term ratings on Austria, France, Malta, Slovakia, and Slovenia by one notch while long-term ratings on Belgium, Estonia, Finland, Germany, Ireland, Luxembourg and the Netherlands were left unchanged. Rumours of the downgrade had been circulating during the European afternoon with the EUR already sliding from its 1-week high and the announcement catapulted the single currency to fresh 2012 lows. Thin markets ahead of the US long weekend did not help matters.

News that Greek PSI discussions had broken down added fuel to the bearish fire though comments from Germany's Merkel that the EU's ESM would be up and running as soon as possible prevented a more serious rout. She added that 'We are now challenged to implement the fiscal compact even quicker ... and to do it resolutely, not to try to soften it'.

US data had also fostered a risk-off sentiment with the US trade gap widening to $47.8 bln in November from a revised $43.3 bln though Michigan confidence did improve to a 7-month high of 74.0 from 69.9 last. Wall St entered the long weekend on a gloomy note with JP Morgan's earnings miss adding to the gloom from Europe's downgrades. The DJIA closed down 0.39 percent, S&P down 0.49 percent and the Nasdaq down 0.51 percent.