Intraday Market Thoughts Archives

Risk appetite is improving after Italy passes austerity, Merkel's centre-right coalition survived a rebellion by eurosceptics, and Italy's Lower House passed the vote on austerity. The sharp decline in EURUSD 1 month volatility (yesterday and today) is helping EURUSD higher along with all other currencies against the US dollar. This risk-on trade is also boosting gold and silver alongside oil. So how High the EURUSD Rebound? Click here for Friday's 10 NEW trades and 5 EXISTING trades http://ashraflaidi.com/products/sub01/access/?a=571 Non-subscribers click here http://ashraflaidi.com/products/sub01/

Italian Lower House approves austerity, German FDP support leaders backing ESM; Eurozone trade surplus decline; Euro stabilizes on improved appetite, AUDUSD above parity, gold above 1600, CHF consolidates yesterday's gains. Focus turns to consumer inflation, two FOMC members' speeches and Canadian international securities transactions.

Improved sentiment combined with position squaring helped to push riskier assets slightly higher throughout the London session. Relative strength winners are NZD and AUD. European indices are mixed between -0.4% to +0.5%.

Event though a referendum among chancellor Merkel's coalition failed to reach the necessary quorum, nearly 55% of those who voted supported party's leaders who back the ESM. German economics minister Roesler said that the FDP remains pro-European and that today's result is a victory for Angela Merkel.

On the data front, Eurozone trade surplus shrank in October to EUR 1.1 bln from previous EUR 2.7 bln. On seasonally adjusted basis it shrank to EUR 0.3 bln from EUR 2.2 bln as imports (+7%) rose faster than exports (+6%). Pro-export Germany saw a 1.7% decline in exports. EURUSD trades firmly above 1.30 but has not been able to break above 1.3045 resistance.

Euro is underpinned by narrowing 10 year spreads. Italy-Germany narrowed to 441 bps while Spain-Germany spread narrowed to 326 bps. However, German 2 year yields only 0.22% while its US counterpart yields 0.23% which may limit EURUSD recovery.

CHF has been consolidating yesterday's gains and continues to trade near its highs despite rumors of SNB selling after EURCHF peg was confirmed at 1.20. EURCHF trades around 1.2230 with reported large stop loss orders sitting below the figure.

The New York session will bring CPI due at 8:30 am ET that is expected to remain steady at 3.5% y/y (+0.1% from -0.1% m/m). Core CPI is also seen steady at 2.1% y/y and 0.1% from 0.1% m/m.

Canadian international securities transactions also due at 8:30 am ET are expected to rise to CAD 8.23 bln from previous CAD 7.35 bln

The market volatility could also increase at 11:15 am and at 12:00 pm when Chicago Fed president and FOMC member Charles Evans and Dallas Fed president and FOMC member Richard Fisher deliver their speeches.

Italy confidence vote may trigger fresh uncertainty, Merkel Fears FDP split, Fitch and S&P downgrades add to pressure on banks, Cracks start to appear in fiscal compact, US CPI due, Fridays Premium Intermarket Insights are due ahead of the US open.

Fitch downgraded Goldman Sachs & Bank of America as well as scores of European banks (including Barclays, BNP Paribas and Deutsche Bank) on the basis that they are too big to fail, In a separate move Standard and Poors also downgraded 10 Spanish banks.

In an attempt to instil confidence to the markets and bring bond yields down Italian PM Monti has called for a confidence vote today on the new austerity budget, in the face of strikes earlier this week and increasing opposition within the country. If it is voted down it will throw into doubt the effectiveness of Montis appointment and the ability of Italy to get on top of its problems.

In Germany, splits amongst Angela Merkels junior coalition partners the FDP could come to the fore, if they vote against the setting up of the ESM, the permanent bailout fund. Not only could it force the party from government but it would mean that Merkel would have to rely on opposition support to push the measures through and weaken her politically.

In a separate development EU officials invited the UK to participate in negotiations over the proposed measures in the fiscal compact in the coming weeks, despite a number of countries starting to express severe misgivings about the sovereignty over reach of some of them. The countries in question include Hungary, Czech Republic, Poland, Ireland and Sweden.

The only economic data of note is the release of US November CPI, however that isnt expected to offer up too much in the way of surprises.

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The best report on US jobless claims in three years failed to inspire a positive reaction in markets. CHF and CAD were top performers; USD and AUD lag. Indias central bank delivers a rate decision late in Asia-Pacific trading, widely expected to keep rates unchanged. More importantly, its the ONLY BRICs nation to have yet to cut interest rates. Although the PBOC has not cut its policy lending rates, it has already slashed the reserve requirement ratio. Another look at those Premium Intermarket Insights, with those AUDNZD trades, moving further near the target.

Initial jobless claims fell to 366K compared to the 389K expected the lowest reading since May 2008. At the same time, the Empire Fed climbed to 9.53 from 0.61. The euro hit 1.3050 shortly after the reports but that was the high of the day. Other risk trades followed a similar pattern, tailing off as the day continued.

Other economic data was mixed as industrial production fell 0.2% compared to the +0.2% expected and the Philly Fed hit 10.3 compared to the 5.0 consensus.

Volatility was light and most pairs traded in a 50 pip range in the US session. The S&P 500 gained 0.3% to 1216.

We would have anticipated a better market reaction given the news, especially coming on the heels of the strong Spanish debt auction. Instead, markets were unimpressed even after several days of caution.

The takeaway is that good news has failed to prompt a substantial short squeeze in EUR or other beaten down assets. The market caution was well founded as Fitch cut the ratings of six of the worlds top banks after the close. For a look at those EURJPY, Aussie & metals trades, they can be accessed directly at http://ashraflaidi.com/products/sub01/access/?a=570

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Commodity markets also continue to send negative signals. WTI crude fell another $1 after sinking nearly $5 on Wed and gold fell for a fourth day.

The RESERVE BANK OF INDA will announce rates at 0630 GMT. The current repo rate is at 8.50% after 13 rate hikes. A fall in the rupee may keep pressure on inflation, which stands above 9%. The government and central bank have indicated a coming shift toward growth-oriented policies but it may take some time. In Friday's decision we will get a sense of how long they plan to wait. The

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.

There are 12 new Premium trades from Thursday night, which can be accessed directly at http://ashraflaidi.com/products/sub01/access/?a=570 Non-Subscribers can click here to join: http://ashraflaidi.com/products/

SNB vows to defend 1.20 EURCHF, Eurozone Dec flash PMI improves, UK retail sales drop unexpectedly, Spanish bond auctions saw lower yield but also lower bid to cover ratio. Eurozone Nov CPI holds at 1.6%. There are 12 Premium Intermarket Insights traded from Wednesday night, along with key 3-in1 charts on cyclical deleverarging.

Eurozone Dec flash manuf PMI edged up to 46.9 from 46.4 while flash services PMI rose to 48.3 from November's 47.5. On the inflation front, Eurozone Nov CPI held at 3.0%, while core CPI held at 1.6%.

The SNB announced it would stick to the 1.20 EURCHF floor and defend it with "utmost determination" by buying foreign currency in unlimited quatities. SNB said Inflation will dip into negative territory due strong franc and worsening growth in Eurozone.

UK Nov retail sales fell 0.4%, vs expectations of a 0.2% decline and previous 1.0% increase. y/y rose 0.7% vs exp +0.4% and prev 1.1%

Fitchs downgrade of five European banks including Credit Agricole was the latest in a line of blows to hit the single currency yesterday and the prognosis for optimism isnt likely to improve today with the release of the latest services and manufacturing PMI data from France, Germany and the Eurozone.

The ECB is also set to publish its monthly report for December while Mario Draghi is due to speak later this morning in Berlin.

Core consumer prices are also expected to show signs of stability back in the face of slowing economic activity remaining at 1.6%, the same as the previous month, while ordinary prices are expected to stay at 3%, above the ECBs target rate.

Spain auctions sold 3.15% in 5-year auctions at an average yield of 4.02% vs. previous 5.276%; 10 year auction average yield was 5.54% vs previous 5.43%.

There are 12 new Premium trades from Thursday night, which can be accessed directly at http://ashraflaidi.com/products/sub01/access/?a=570 Non-Subscribers can click here to join: http://ashraflaidi.com/products/

CBI industrial orders due later in the day arent expected to encourage either with expectations of further deterioration to -20 from -19.

China slowdown fears continued to build after flash HSBC Manufacturing PMI for December came in at 49, slightly better than Novembers final 47.7, but still in contraction territory.

Oil and metals prices were hit hard by a broad wave of risk aversion in US trading. The US dollar was the top performer while AUD lagged. Japans large manufacturers Q4 Tankan at -4 from -2, and the latest 12 NEW Premium trades below ahead of tonights HSBC flash China PMI.

The euro fell after Merkel warned there will be no quick solutions and Greek growth and deficit estimates were lowered once again. EUR/USD touched a low of 1.2945 but rebounded to close out the session at 1.2980. It was the first close below 1.30 since Jan 9.

The worries picked up after Italy sold 5-year note at a record high yield. The US bond market showed the demand for safety is genuine as 30-year bonds sold at a record low 2.92%, mirroring the strength of Tuesdays 10-year sale.

Major damage was done in the commodity space where WTI crude fell more than $5 to below $95. Global growth barometer copper also fell nearly 5%. The drop in gold extended to a third day, falling $59 to $1572.

Downgrades continued late in the day as five European banks, including Frances Credit Agricole were lowered one notch by Fitch. France appears to be preparing the public for the loss of its AAA-rating; the foreign minister downplayed the effects.

The S&P 500 fell 1.1% to 1212.

Asia-Pacific Preview

Japan released its quarterly Tankan survey showing -4 in Q4 vs exp -2 from prev +2, with large manufacturing capex slowing to 1.4% from 3.0% vs. exp 2.5%.

Ashraf offered trades and analysis of the HSBC China PMI for premium subscribers ahead of the 0230 GMT release. The 47.7 reading last month fell from 51.0 in October and sparked a round of risk aversion. A modest improvement is likely here but a reading over 50 will be required to generate any significant risk appetite. Ashrafs latest Premium trades ahead of tonight's China data http://ashraflaidi.com/products/sub01/access/?a=570 Non-Subscribers can click here to join: http://ashraflaidi.com/products/

Throughout late Q3, we repetitively made the case for $1.28 EURUSD to occur by year-end based on 4 main principles; i) Debt crisis making EFSF size unsustainable; ii) German contraction forcing more aggressive ECB easing iii) EUR-USD 3-month LIBOR spreads falls back below 0.90% (now at 0.79% from 1.30% in July) iv) No QE3 from the Federal Reserve (this was replayed in yesterday's FOMC impact). Some market participants were expecting some sort of inflation target. WHAT HAPPENS NOW? See our latest Premium trades ahead of tonight's China data http://ashraflaidi.com/products/sub01/access/?a=570 Non-Subscribers can click here to join: http://ashraflaidi.com/products/

EURUSD hit $1.2970s, UK labor market data mixed; Swiss ZEW declined; Eurozone industrial production lower. Italian auction results in higher yield and lower cover but reaches intended target. NY session will bring import prices, Canadian leading indicators and manufacturing sales. Here is Ashraf's interview in later September making the case for $1.29 by year-end http://youtu.be/wSodzBHN7Y4

USD is higher across the board as the attack on the Euro continues. EURUSD breaks below 1.30 at lowest since January 2011. European equities are losing -0.8 to -1.5%.

Rumours of a France downgrade are swirling again as markets await the reaction by S&P to the EU Summit. But French 10-yr yields are actually down at 3.19%, while the spread w/ German 10 yr yields is 1.23% from the 1.90% high reached in Nov.

In the UK, claimant count rate remained at 5% in November while jobless claims reached 3K from previous 2.5K. Even though the claims were significantly below expectations of 14K, the total number of claimants reached the highest level in nearly two years. The ILO unemployment rate kept steady at 8.3%. According to the Office for Budget Responsibility, the unemployment would reach 8.7% in 2012. GBPUSD moved higher on the release but has since lost its gains and trades below 1.55

Swiss ZEW economic expectations index dropped in December to -72 from previous -64.3 supporting the expectations of a sharp slowdown. Somewhat surprisingly, 70% of surveyed experts are expecting the price level to remain steady. The eagerly awaited SNB meeting which could possibly result in an increase of the EURCHF peg is due tomorrow at 3:30 am ET. EURCHF trades firmly above 1.23

Eurozone industrial production declined in October -0.1% after it declined -2.0% in September which translates to 1.3% from 2.2% annual growth.

Italy was able to sell EUR 3 bln 2016 BTP reaching its intended target amount. However, the average yield increased to 6.47% from previous 6.29% while bid to cover declined to 1.42 from 1.47. After the auction, 10 year Italian-German spread increased to over 500bp. Meanwhile, Germany completed 2011 funding with today's auction and sold its 2 year with the lowest yield since Euro introduction.

The New York session kicks off at 8:30 am ET with November import price index that is expected to rise to 1% m/m from previous -0.6% but decline y/y to 10.1% from 11%.

Canadian leading indicators are seen higher in November at 0.4% from 0.2% while manufacturing sales are anticipated lower in October at -0.6% from 2.6%. Both are due also at 8:30 am ET.

Crude oil inventories due at 10:30 am ET are expected to drop -2.2M barrels after growing 1.3M barrels last week.

UK unemployment set to increase further, Italy to sell bonds, EZ Industrial production to flat line, Swiss prices and ZEW set to remain weak. Of Tuesdays 13 new trades, 5 hit all targets, 4 in progress, 1 stopped out and 3 remain unfilled.

Yesterdays FOMC meeting damaged the already sold off euro as Bernanke & company were in no rush to implement further QE. This drove the US dollar index above 80 for the 1st time since January and the index is set to post its second monthly increase, the longest winning streak since April-May 2010.

UK Nov claimant count is due next, expected to increase by about 14k, well above the previous 5.3k. ILO 3 month unemployment rate is seen remaining unchanged at 8.3%. .

Euro had already been under pressure in any case on the back of fears about further ratings downgrades as well as Merkels comments about the new ESM fund. Concerns about rising bond yields in Italy and Spain remain at the forefront of investor concerns and todays auction of 3bn 2016 Italian bonds will come under scrutiny.

As will the latest Eurozone industrial production data for October and is expected to slip back from 2.2% to 2.1% on an annualised basis, with the monthly figure expected to come in flat after Septembers sharp 2% drop.

Swiss import prices fell 0.8% in Oct vs the expected 0.3% following -0.2%, while falling 2.4% annually following a 1.8% decline . This weeks downgrade of Swiss GDP growth for 2012 was an unwelcome reminder of how the high value of the Swiss franc was impacting the economy in Switzerland.

Of Tuesdays 13 new trades, 5 hit all targets (2 EURUSD, 1 EURJPY & 2 ES), 4 are in progress (gold, silver USDCAD and CL_F) , 1 stopped out (CL_F) and 3 remain unfilled. For direct access to these trades, click here: http://ashraflaidi.com/products/sub01/access/?a=569

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The euro fell to the lowest levels since January after Merkel rejected a hike to the permanent bailout fund and the Fed remained firmly on the sidelines. USD and JPY were the leaders while EUR and CHF lagged. Japanese industrial production is a highlight in the upcoming session. Ashrafs premium Intermarket Insights warned that a lack of QE3 would upset markets and weigh on EUR & metals. Of Tuesdays 13 new trades, 5 hit all targets, 4 are in progress, 1 stopped out and 5 remain unfilled.

There were no surprises in the FOMC statement. They continue to expect moderate economic growth to slowly bring down unemployment. New references were to an apparent slowing in global growth and strains in global financial markets as a primary source of downside risks.

Like markets, the Fed appears to be waiting and watching how the situation will unfold in Europe before tipping its hand. If anything, the absence of a more upbeat tone was a surprise in light of recent positive data.

But the Feds caution was underlined by November US retail sales which advanced just 0.2% compared to the 0.6% expected. Ex-autos and gas sales also climbed 0.2% compared to the 0.4% consensus. Disappointing sales coming into the holidays were underscored by a poor quarterly report from electronics retail giant Best Buy, sending shares 15% lower.

Of Tuesdays 13 new trades, 5 hit all targets (2 EURUSD, 1 EURJPY & 2 ES), 4 are in progress (gold, silver USDCAD and CL_F) , 1 stopped out (CL_F) and 5 remain unfilled. For direct access to these trades, click here: http://ashraflaidi.com/products/sub01/access/?a=569

Non-subscribers can get a free trial here http://ashraflaidi.com/products/sub01/

The S&P 500 fell 0.9% to 1226.

The euro broke the October lows after a Reuters headline said Merkel rejected raising the 500B upper limits of the ESM. The euro bounced on talk of Fed QE and a rumoured closure of the Straits of Hormuz, which was later denied.

Asia-Pacific Preview

The session will be quiet 0430 when Japan unveils revised Oct industrial production figures. A 2.4% rebound is expected after a 3.3% decline in September.

With the Federal Reserve not expected to announce any new stimulus measures, it risks upsetting markets anew as foundation from the Eurozone uncertainty deepens. The split within the FOMC between those wanting further stimulus and those against it isnt going away soon. But the more fundamental question is: how long could US equities be sustained simply by the Feds willingness to examine further easing without actually doing it? Here are our latest Premium Trades for Tuesday http://ashraflaidi.com/products/sub01/access/?a=569 Non-subscribers can get a free trial here http://ashraflaidi.com/products/sub01/

UK inflation eases; German and Eurozone ZEW improves; Spanish auction well received; Swiss government lowers GDP and inflation forecast. Market turns to US retail sales, which IBD/TIPP economic optimism and later to FOMC rate announcement. See Ashrafs latest analysis on Gold, Silver & the technical of Gold/Silver Ratio below.

USD drops across board as risk appetite improves, courtesy of better than expected Spanish auctions. Relative strength winners are AUD, NZD and CHF. European equities show nearly 1% gains.

UK inflation pressure continues to ease as anticipated. The CPI declined to 4.8% in November from 5.0% in October while the core CPI declined to 3.2% from 3.4%. The decline is attributed to lower price of food, petrol and clothing. The reaction on GBPUSD was minimal as the result was in line with expectations.

The pressure on the euro may ease in the short term as positive surprises regarding sentiment were released. German ZEW economic sentiment printed -53.8 in December, slightly better than November's -55.2 while its Eurozone's counterpart showed -54.1 from previous -59.1. EURUSD currently trades firmly above 1.32.

Spanish bond auction was well received, further underpinning the Euro. Spain sold EUR 3.44 bln in 12 months bills at 4.05% with bid to cover at 3.1 and additional EUR 1.5 bln of 18 months bills at 4.226% with bid to cover at 5.0. As a consequence, Spanish-German 10 year spread paired back widening seen earlier during the session and it currently stands around 409 bps.

The Swiss government lowered its forecast for 2012 GDP growth to 0.5% from 0.9% and sees deflation reaching -0.3% from previous projection of an inflation of +0.3%. Growth should reach 1.9% in 2013. On a positive note, if the Eurozone crisis does not worsen, it is projected that the downturn is expected to be relatively short. Considering the projected deflation and recent SNB comments that the Franc is still overvalued, the rumors that the SNB will increase the EURCHF peg on Thursday gained credibility.

The US session starts at 8:30 am ET with November retail sales that are seen higher at 0.6% from previous 0.5%. However, core sales are expected to decline to 0.5% from previous 0.6%.

IBD/TIPP economic optimism index due at 10:00 am is anticipated to rise to 42.6 in December from previous 40.6.

The key event will come at 2:15 pm ET when the FOMC delivers its statement. The fed funds rate will remain below 0.25%. Given the recent improvements in US data, mainly lower unemployment rate, the FED is unlikely to hint new easing measures and will instead adopt the wait and see approach.

See Ashrafs latest analysis on GOLD, SILVER & GOLD/SILVER Ratio Technicals here: http://ashraflaidi.com/hot-chart/?a=2977

UK CPI next, German ZEW expected to fall further, Spain to issue t-bills, after 8 banks put on downgrade watch. Tuesday's Premium Intermarket Insights follow ahead of the US session.

Todays inflation numbers will also be closely scrutinised for evidence that price pressures in the UK economy are beginning to subside, however it looks likely to be a long drawn out process with November inflation predicted to drop back to 4.8% from 5% in October. Retail prices, however are expected to remain above 5% at 5.1%, still down slightly from 5.4%.

The EU-UK spat became secondary to the a more fundamental issue in FXa warning by Fitch and the OECD on UK & Eurozone growth. Fitch downgraded its UK growth forecast for 2012 from 1.2% to 0.7% while the OECD leading indicator fell once again in October to 98.6, below its long term average of 100.

Due in Germany is the latest ZEW survey with expectations for another poor number of -56, down from -55.2 in November. The current situations index is also expected to slip back from 34 to 31.

Spanish bond yields have started once more to edge up towards the 6% ahead of todays auction of t-bills. Spain will sell 3.25m 12 month, and 4.25m 18 month T-Bills. The EFSF is also looking to sell 2bn of 91 day T-Bills.

The new Spanish parliament gathers for the first time since the new PM Rajoy was elected last month, with speculation that the new government could well go down the Irish route by setting up a bad bank of toxic assets. Last nights announcement by Moodys to put eight Spanish banks on review for a downgrade as well as removing systemic support for subordinated debt, could well open up that discussion for further debate.

Tuesday's Intermarket Insights follow ahead of the US session; For direct access to the latest edition, click here: http://ashraflaidi.com/products/sub01/access/?a=568 Non-subscribers can click here: http://ashraflaidi.com/products/sub01

In the US we look set to find out if Black Friday had an unduly positive effect on the retail sales numbers for November, followed by the FOMC decision at 19:15 GMT.

Sovereign downgrade talk and disappointment from the EU Summit spurred a selloff in risk assets Monday that pushed EUR/USD below 1.32. USD was the top performer, followed by JPY; EUR and AUD lagged. A series of second-tier indicators will be released in the Asia-Pacific session. The CHF-related trades in Mondays Premium Intermarket Insights are already moving in the right direction.

The euro tracked steadily lower since the open of trading for the week, slipping as low as 1.3163. A break below the early October low of 1.3144 would place EUR/USD at the lowest in almost a year.

Moodys and Fitch sees increased pressure on European ratings. Moodys said the results were not decisive and Fitch forecast a significant economic downturn in the continent which will hurt ratings.

The S&P 500 touched a Dec low and closed down 1.49% to 1236. Italian 10-year yields rose 30 bps to 6.53%.

Economic data was light. The US November deficit was $137B compared to the $150B consensus. We warned on Friday about the flakey nature of ECB bond-buying rumours and data released covering last week affirmed that the central bank was a miniscule player, buying just 0.635B of European debt last week, much lower than previous weeks.

Gold fell $50 intraday to the lowest since October despite the sovereign worries. Market talk suggests year-end repositioning and/or liquidation.

Mondays extensive CHF analysis shows the various ways of playing the franc peg ahead of Thursdays SNB policy meeting. http://ashraflaidi.com/products/sub01/access/?a=568 Non-subscribers can click here: http://ashraflaidi.com/products/sub01

Asia-Pacific Data

Japans tertiary industry index rose 0.6% in Oct vs an expected +0.4% m/m from previous -0.7%. At 0030 GMT, quarterly Australian housing starts will be released. There is no consensus and this risk is essentially one way for AUD. A continued deterioration like the 4.7% q/q fall in the second quarter will spark selling while a rebound will be met with skepticism. At the same time, the NAB business confidence survey will be released.

Ashraf telling AlArabiya of last week's warning about a break in the EURUSD's consolidation has yet to unfold and that gold is due for further losses towards $1600s. NON-ARABIC SPEAKERS can click below the video clip on "Show More" to read the brief synopsis in English http://youtu.be/0fiW-5wY80c

Subscribers of our Intermarket Insights were warned in Thursdays premium piece (Dec 8) titled End of Euro Consolidation? that EURUSD could be finally breaking below the Nov 25 trendline support. The 3 charts seen in the link here include EURUSD ; which is marked Now Eyeing 1.3220s (The charts can only be zoomed in if youre a Premium member). http://bit.ly/ufRMAz Our Premium Subscribers also looked at our latest bearish takes on gold and silver, calling for 1660 gold on Thursday.

Our cyclical indicators argue for further losses in equities into early Feb with a 70% certainty level. We shall keep our subscribers updated with our latest comfort level with these forecasts as well as the trading implications. Meanwhile, todays extensive CHF analysis shows the various ways of playing the franc peg ahead of Thursdays SNB policy meeting. http://ashraflaidi.com/products/sub01/access/?a=568

Euro Deepens Sell-off S&P to decide on Ezone downgrades in coming days; German WPI lower; Swiss employment higher; Italy sells 1 year bill with lower yield; French auction later today. The US session brings federal budget deficit data. See out extensive Premium piece on the CHF & one way to exploit franc weakness ahead of Thursdays quarterly SNB meeting.

Relatively tight ranges seen during the Asian session were broken when London traders got to their desks and started to buy the greenback. The USD is higher across the board and European equities are losing slightly less than 1%.

It seems that Friday's EU summit with its new treaty was quickly forgotten as traders continue to sell the common currency. EURGBP trades just a few points above the critical support given by November 10th low at 0.8485 and should this level be broken, the market would target the support zone around 0.8350 and in extension even 0.8150. On the back of the EURGBP selloff, GBPUSD jumped from 1.5540 to above 1.56.

S&P head in France Carol Sirou said that the S&P will decide whether to downgrade Eurozone countries in coming days so it is reasonable to assume that as long as the rating downgrade looms the willingness to open long Euro positions will be slim.

Latest Premium piece on trading CHF Fundamentals & Technicals ahead of Thursdays SNB meeting is found here: http://ashraflaidi.com/products/sub01/access/?a=56

The European economic calendar was light today. German November WPI printed 4.9% y/y, marginally lower from previous 5% and Swiss employment level rose to 4.05M in Q3 up from previous 4.02M.

Italian treasury was able to sell EUR 7 bln in 1 year bills with 5.952% yield, slightly lower compared to previous 6.087% with bid to cover at 1.925. Despite the lower yield, EURUSD continues to trade heavy bellow 1.33. French bond auction is scheduled for later today and given the downgrade threat, the risks of higher yields and/or low demand are high.

The US data is limited to the federal budget deficit due at 2:00 pm which is expected to widen in November rather substantially to USD -138.5 bln from previous USD -98.5 bln.

CAD traders should pay attention at 1:10 pm when BOC governor Mark Carney delivers a speech on Canadian economic developments in Toronto and also at 2:10 pm when he holds a press conference.

Europe agrees to follow original treaty rules with tweaks, UK isolation in focus as Cameron faces UK parliament, French and Italian T-bills auction awaited, Greece set to discuss new bailout plan. Gold drops by 29 to 1680, nearing our Thursday Premium shorts.

EURUSD drops below 1.33 while markets are in the red after Moodys warned that Eurozone sovereign rating were under pressure in the absence of decisive Initiatives following the EU Summit. This comes at a time when markets await the verdict from S&P following last weeks massive warning downgrade.

Last weeks summit saw Europe agree to follow the rules of the original stability and growth pact of the Maastricht Treaty, with a few tweaks to impose sanctions as well as oversight of the books in the event that countries breach them. These rules include budget deficits of no more than 3% of GDP and overall debt to GDP to be below 60% of GDP.

The only problem with that is that most EU countries, including Germany with 82% debt to GDP ratio, are already in breach of these rules and as such these will have to be delayed until such time as the existing budgets are brought into line.

The downside to that is that any wholesale budget cuts across Europe will also cut growth as well at a time when growth is already non-existent.

UK PM David Cameron is set to speak to the House of Commons today in the wake of the political fall-out from Fridays EU Summit. With nervousness amongst his Liberal Democrat partners about last weeks events becoming ever more vocal there is some concern that this could increase tensions within the coalition.

In the wake of Fridays events in a key test France is set to auction 6.5bn of 91, 182 and 308 T-bills in a week that could see it lose its triple A rating from Standard and Poors after last weeks warning that it could start cutting ratings if no agreement was reached at the weekend.

In Italy its three biggest unions are set to stage a 4 hour strike in protest at the latest austerity measures, while at the same time the government is set to auction 7bn of 365 day T-Bills.

Greece starts talks with the troika of its creditors today on a new bailout package, nearly five months after the original plan was discussed in July.

Gold drops by 29 to 1680, nearing the double shorts from Thursdays Premium shorts. For direct access, click here: http://ashraflaidi.com/products/sub01/access/?a=567 Non subscribers can go here: http://ashraflaidi.com/products/sub01/

European leaders took major steps toward a fiscal union but the market

was only lukewarm due to the objections of Britain and the political

minefield of implementation. Markets turn to S&P's reaction to the EU Summit outcome, awaiting which sovereigns will be downgraded. For the second day, AUD and CAD were the best performers while USD and JPY lagged. Weekly CFTC data showed trimmed EUR shorts and a jump in AUD longs. See the chart below highlighting how net speculative longs in EUR vs USD have always followed the actual EURUSD spot price.

All 17 euro nations agreed to move forward with a plan to allow the

European Court of Justice to strike down national laws that don't

enforce fiscal discipline. These are the first real steps toward a

United States of Europe. US-like integration is probably fantasy but a

fiscal union would be a game-changing solution to the current crisis.

Italian 10-year yields fell 10 bps to 6.36% after rising as high as

6.69%. There was widespread talk of ECB bond buying but that seems to be a customary rumour on every perpipheral bond market improvement. Largely overlooked was an ECB endorsement of banks borrowing term funding and investing in sovereign debt.

The latest chart shows EUR NET SPECULATIVE INTEREST vs USD has reached the highest net shorts since June 2010, highlighting EURUSD has always followed the flows in speculative interest http://ashraflaidi.com/hot-chart/?a=2968

Economic data was positive in the US as an improved trade balance led to upgrade to Q4 GDP forecasts and the U Mich consumer sentiment survey improved to 67.7 from 64.1, beating the 65.6 expected.

The S&P 500 gained 0.9% on the week after a 1.7% rally on Friday.

Weekly Charts

We are entering the time of year where technicals and flows begin to

outweigh fundamental news as liquidity begins to thin and books are

closed out for the year.

In spite of the drama in Brussels, the euro's weekly range contracted

for the second week, trading in a 200-pip range and closing almost

flat on the week. The message is that a move above 1.3550 or below

1.32 will lead to a sustained move.

USD/JPY is settling into a range from 76.57 to 78.28.

Cable ran into selling pressure near 1.58 for the second week as it

consolidates before another slump.

AUD closed virtually unchanged on the week, which has to be a

disappointment for the bulls after the prior week's 500 pip surge.

Committments of Traders

Traders at the CME pared back bullish bets on the US dollar by 19% in

the week ending Dec 6. Positioning changes were all less than 10% with

the exceptions of the Australian dollar where longs more than doubled

to 30K from 13K and the Canadian dollar where the net short fell 23%.

The euro remains in a deeply negative position at -95.8K but is

improved by 8.5K compared to last week. As Ashraf showed earlier, the

EUR is lagging the bearish speculative position. JPY longs are at 38K,

down 2K compared to last week. The GBP short fell by 2.5K to -43.5K

and the CAD short fell by 5K to -20K.