Asia Session: Traders In Asia Are Unwilling To Make A Big Move

Last night we witnessed 523 banks borrow a record EUR489 billion from the ECB, more than the general consensus of around EUR310 billion, and risk assets still lost ground to treasures, the dollar and other perceived safe havens. However, this is not surprising given that the market wants something that is going to reduce the cost of holding sovereign debt and we cannot see this recent round of ECB lending accomplishing this. Banks’ holdings of sovereign debt got them into trouble in the first place and with no solution to the European debt crisis in sight, why would they load up with more? The ease with which the recent risk rally ended leads us to believe that the market is of sick of short-term fixes to the debt crisis, investors want a permanent solution to restore confidence. This could mean that risk assets might continue to suffer leading into 2012, especially if rating agencies step forward and downgraded France’s credit rating, which could lead to a downgrading of the EFSF. Australia’s stock market is one the biggest losers in the session, despite Moody’s affirming the country’s triple AAA rating. The index is being led down by the basic materials sector, which is being affected by the overnight fall in commodity prices and concern surrounding Europe. In the long-term, we are concerned about ailing Asian export markets that rely on demand from Europe weighing on economies throughout the region, which in turn could hurt demand for Australia’s resources. Risk currencies were the clear losers in the currency markets, with AUDUSD spending most of the session hovering just above overnight lows at around 1.0500. Also, we had the kiwi slipping below the 0.7700 level against the buck. Futures markets are pointing towards a higher open for most equity markets in Europe, yet by only around 0.40% on average. Investors will be turning their attention to current account, final GDP and revised business investment figures out of the UK at 20:30AEST. Ones to Watch: NZDUSD managed to break the 0.7750 level last night, yet as risk sentiment turned the pair eventually slid below 0.7700 early during today’s session. Nevertheless, there was a brief jump in the pair after the release of GDP figures in New Zealand, which came in better than expected at 0.8%q/q. Looking forward, New Zealand’s growth prospects could be hampered by slowing growth figures throughout Asia and a build-up of inventories in the country’s manufacturing sector. Furthermore, if the RBNZ decides to start increasing interest rates then this could hold limit growth, at the same time boosting the kiwi. Technically, today the pair is mostly trading in a tight trading range between 0.7650 and 0.7700 and a break above or below these levels could lead to future upside or downside respectively, beyond the 0.7650 level watch for a possible trend line break, as shown in the chart below. NZDUSD - Hourly Chart