A Breather Before a Big Week

Trading may have been quiet on Friday but the week ahead is chalk full of major events. Minor consolidation was the theme Friday as USD and JPY led while CHF and EUR lagged. The CFTC Commitment of Traders showed expanding yen longs.

The most noteworthy economic news on Friday was a disappointing bond auction that pushed Italian 10-year yields above 6% for the first time since the euros inception. Reports suggested the ECB was forced to buy bonds in the secondary market to stem the selloff.

Although stocks (and to some extent the euro) have endorsed the EFSF leverage the all-important bond market is already showing signs of distrust.

Another worrisome near-term risk comes from the once-venerated MF Global as reports suggest the company wont survive the weekend. A takeover is a high probability but a bankruptcy cant be ruled out.

Despite these worries, the euro only gave back a tiny portions of its gains from Thursday and overall sentiment was neutral. The S&P 500 closed flat on the day.

The negative reports were balanced by a revision to the final October U Mich consumer sentiment survey to 60.9 from 57.5. A smaller bump to 58.0 was expected. The consumption data in the PCE report was in line with estimates at +0.6%.

On the week, the Australian dollar was the top performer followed by NZD. The USD lagged followed by JPY.

The quiet final day of the week may have reflected the intensity of the first four days and the busy schedule in the week ahead. Central bank decisions from the Fed, ECB and RBA will be accompanied by non-farm payrolls, the ISMs, German jobs and retail sales, Canadian GDP and several other major releases.

Commitment of Traders

Fridays CFTC report was surprising in that all the changes in positioning were 3K or less. The lone exception was JPY longs, which nearly doubled to 55K. The yen edged away from session lows after the data was released, perhaps sensing that Japan may be looking to punish speculators. The takeaway from the small changes elsewhere (the data only covers up until the close on Tuesday) suggests that traders were lacking commitment through the European discussions. The positive result left the -77K net short position in EUR extremely vulnerable and the rally reflected that.