Intraday Market Thoughts

FX Stabilizes Ahead of Busy US Session

by Patrik Urban
Dec 15, 2011 12:57

Eurozone CPI remains at 3% and core at 1.6%, quarterly employment declined; GBPUSD slightly stronger despite falling CBI industrial orders; CHF rose after SNB kept floor at 1.20. NY session will bring PPI, empire state manufacturing, TIC data, industrial orders and Philly fed manufacturing. Link to latest Premium Trades & Cyclical Charts is below.

USD consolidates recent gains and it is only little changed against most majors. The one exception is CHF against which the USD is noticeably weaker. The relative strength winners are NZD and CHF. Major European equity indices are higher by about 0.5% to 1%.

Spain sold over EUR 6 bln worth of debt today, considerably above its EUR 3.5 bln target. In its largest auction today, it sold EUR 2.45 bln January 2016 bonds with significantly lower yield 4.02% from previous 5.27%. However, bid to cover fell to 1.99 from previous 2.83. Relatively decent auction helped the Euro to recover a part of its losses as it trades around 1.30, about 50 points above today's low.

In his speech in Berlin, the ECB president Mario Draghi said that the deposit facility is at the same levels as after Lehman Brothers collapsed and that funding pressure will continue to exist not only for banks but also corporates. The ECB president expects that reserve ratio cut freed up to EUR 100 bln in liquidity.

On the data front, Eurozone headline consumer inflation remained at 3% and core CPI stayed at 1.6% in November. Eurozone quarterly employment contracted by -0.1% from 0.2%.

GBPUSD has rallied back above 1.55 despite UK CBI industrial order expectations falling further in December to -23 from November's -19. Total orders fell to the lowest point since 10/2010 and export orders dropped to lowest point in nearly two years.

EURCHF dropped sharply from nearly 1.24 to 1.2250 after SNB kept its floor at 1.20 and reiterated that it will defend the cap with utmost determination. The SNB still sees the Franc as overvalued but SNB Chairman Hildebrand noted that the cap has corrected massive Franc overvaluation. The SNB has kept its libor rate below 0.25%.

The NY session has a busy calendar today. 8:30 am ET will bring PPI which is expected to rise 0.2% in November from -0.3% m/m (2.9% from 2.8% y/y); jobless claims are seen slightly higher at 389K from 381K; Empire state manufacturing index should rise in December to 3 from 0.6.

Net TIC flows due at 9:00 am are expected decline to USD 53.4 bln in October from USD 68.6 bln in September and industrial production due at 9:15 am ET is anticipated to rise mere 0.1% in November from previous 0.7% rise.

The last data release for today is Philly Fed manufacturing due at 10:00 am which is seen higher in December at 5 from November's 3.6.

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