Financial markets may look deceptively subdued again today, but there is a notable difference between this morning and the start of previous sessions this week. Negative euro sentiment has seemingly returned from vacation before the start of the new year, taking EURUSD down to lows of 1.2888 – a collapse of almost 200 pips from yesterday morning's levels.
Perhaps surprisingly, the scheduled auction of Italian debt did not appear to be the key driver of the euro move. Italy's Treasury managed to sell some EUR9bn of 179-day bills at a reasonable rate of 3.251%; down significantly from the eye-watering 6.504% seen at the 25 Nov auction. Instead, the culprit for the euro's sudden plunge seemed to be the ECB's release of its latest balance sheet. The latest snapshot of ECB activity revealed an alarming expansion in the size of the balance sheet from EUR239bn to a whopping EUR2.73trn – clearly well in excess of the market's expectations. The news not only triggered an adverse reaction for the European currency, but also had a knock-on effect on European equity markets; France's CAC40 closed down just over a percent yesterday, and Germany's DAX ended the day down over 2 percent.
Coming up in today's session we will receive the latest regional CPI readings from Germany, along with Eurozone M3 figures for November. This afternoon, US data releases include this week's jobless claims, Chicago PMI, pending home sales and Kansas City Fed manufacturing survey.
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