Intraday Market Thoughts Archives

UK net mortgage lending at record low, new mortgage approvals decline. Index of services fell, 10 year Gilt yield at lows. SNB reassures 1.20 floor for EURCHF. Durable goods, personal income and spending and Canadian GDP are next.

Currencies are trading in narrow ranges ahead of Christmas break. European equities rose by about 0.6% to 1%. Many European exchanges close early today, bonds and gold trading will end one hour earlier than usual so liquidity is likely to be thin.

UK net mortgage lending reached a record low in November at GBP 0.32 bln from October's GBP 0.825 bln. New mortgage approvals declined slightly to 34.78K from previous 35.2K. The index of services declined to -0.7% in October from a previous unchanged print which pushed the 10 year Gilt yield to record low below 2%.GBPUSD has been stuck within 1.5650 1.5720 range for a few days and it currently trades around 1.5670.

Quarterly SNB bulleting reiterated that the SNB will enforce EURCHF floor at 1.20 and is ready to take further measures if needed. EURCHF is slightly higher trading around 1.2235 after it found support at 1.22.

The NY session will kick off at 8:30 am ET with durable goods orders that are seen higher in November at 2% from previous -0.5%. Personal income is expected steady at 0.4% and personal spending should rise to 0.3% from 0.1%.

Canadian GDP which is due at the same time should rise in November 0.1% from 0.2% m/m and 2.7% from previous 3% y/y. USDCAD has been steadily falling since 12/19 and trades below 1.02.

November new home sales due at 10:00 am is anticipated higher at 315K from previous 307K.

US GDP was revised lower but jobless claims were better than expected. Overall market moves were minimal with the Canadian dollar as the top performer and the yen lagging. The Asia-Pacific calendar is bare with Japan closed for the Emperor's Birthday.

Markets retained an overall positive tone on Thursday even with US Q3 GDP lowered to 1.8% from 2.0%. Improvements to trade and business investment were mitigated by slower consumer spending. The real personal consumption expenditure rose 1.7%, far short of the 2.3% expected. Latest on Premium Intermarket Insights.

Initial jobless claims fell to 364K from 368K, beating the 378K consensus. It was the third consecutive week of lower-than-expected claims. Housing continues to send mixed signals with the monthly house price index fall 0.2% in November compared to the +0.2% expected. Leading indicators rose 0.5% in Nov and U Mich consumer sentiment was revised up to 69.9 from 68.2.

In an exit interview, departing ECB member Bini-Smaghi hinted that bond buys may be necessary and urged leaders not to hide behind lawyers to avoid taking action. Italian PM Monti also survived a final confidence vote on the budget.

The euros performance on Thursday once again underscores our negative bias. The explosive rally to 1.3120 in early European trading was snuffed out in two hours and EUR/USD closed virtually unchanged on the day despite 1.0-1.4% gains in European stocks.

The S&P 500 rose 0.8% to 1253. Gold fell to $1604/oz.

The USDCAD short, oil long, ES long and 1 silver short hit all targets, while the 1 EURUSD trade, 2 EURJPY & AUDUSD positions remain in progress. The remaining AUDNZD is nearing its target, while 1 both gold shorts, 1 silver short and 1 oil long remain unfilled. USDJPY short was stopped out. Direct access to those remaining trades http://ashraflaidi.com/products/sub01/access/?a=573 Non-members, can get a Free Trial here http://ashraflaidi.com/products/sub01/

US jobless claims hit fresh 3-year lows at 364K, final US Q3 GDP revised down to 1.8% from 2.0% partly due to personal consumption revision to 7% from 2.3%. UK final GDP revised higher q/q; UK current account deficit at record highs; French downgrade rumor reappears again. Market turns to final Q3 GDP, UOM consumer sentiment, leading indicators and house price index.

USD is mixed in the ongoing session. It is weaker against AUD, NZD and CAD. Relative strength winner is AUD. European equities are higher by 1% to 1.4%.

Riskier assets were higher across the board when the rumor about French downgrade reappeared yet again. Markets quickly sold off but were able to recover.

Italian PM and finance minister Mario Monti called for the senate to approve the budget today. He said that passing of the austerity measures means Italy can face the crisis but warns that the situation is still critical.

UK final Q3 GDP was revised higher to 0.6% from 0.5% q/q and remained unrevised at 0.5% y/y. However, Q2 growth was lowered to 0% from 0.1% q/q. Any improvement in sentiment towards the GBP is likely to be negated by current account deficit that widened considerably in Q3 to the highest level on record to GBP 15.2 bln from GBP 7.4 bln. Current account as a proportion to GDP reached 20+ year high. Considering that most analysts predict zero or close to zero growth in Q4, the Q3 revision higher is likely to be quickly forgotten. GBPUSD trades back below 1.57 nevertheless above 1.5650 support.

CHF continues to fall further, albeit at a slow pace, as Swiss finance minister examines further measures to weaken the Franc. However, Swiss parliament has rejected motions that would allow negative interest rates. EURCHF trades around 1.2230, not far from a session highs.

US final Q3 GDP was revised down to 1.8% from 2.0% partly due to personal consumption revision to 7% from 2.3%. US jobless claims hit fresh 3-year lows at 364K. The news is helping stocks to push up further, alongside a boost to oil prices.

The final December university of Michigan consumer sentiment due at 9:55 am ET should see and increase to 68 from initial 67.7.

November leading indicators are seen lower at 0.3% from previous 0.9% and October house price index is expected to decline to 0.2% from 0.9%. Both indicators are due at 10:00 am.

The latest PREMIUM TRADES show Ashrafs strategy of favouring CAD & oil continues to make up for those unfilled trades. Here are is direct access to those remaining trades http://ashraflaidi.com/products/sub01/access/?a=573 Non-members, can get a Free Trial here http://ashraflaidi.com/products/sub01/

Ashraf's 17-minute interview on Dubai TV (Arabic) distinguishing between the euro's weakness of 2010 and of 2011, and how US rate expectations are the main reasons EURUSD is well above last year's levels. Ashraf also covers the outlook for gold and silver in the face of central banks' policy manoeuvres, as well as the role of traders' sentiment in the latest turn in the Eurozone debt crisis. Watch here:

http://www.youtube.com/watch?v=TqCk0BZn6os

UK final Q3 GDP to show 0.5% growth as sterling hits 10 month highs, Italian economy continues to slide with retail sales continuing to fall, Hungary downgraded to Junk and Greek PSI talks in doubt, US Q3 GDP and weekly jobless claims later in US session. Ashrafs Premium longs on oil (Feb contract), CAD have hit targets, while longs in EURUSD are on track.

Todays final UK Q3 GDP due at 9:30 GMT seen confirmed at 0.5%, yet, it is Q4 growth that is the primary concern for the markets, especially following yesterdays BoE minutes showing major concerns with output growth to come up flat. Those BoE minutes suggested the MPC was in no rush to increase the extra 75bn worth of asset purchases. Fears about the stickiness of inflation will see the Bank hold fire on committing any new money to help the economy until the bank has sight of the inflation numbers in January, which should see the effects of this years VAT hike drop out of the figures.

In Europe, 523 banks themselves on ECBs 3 year LTRO, which after an initial pop in the single currency saw the euro slide back. The sheer size of the take-up suggests that while the ECB may have dealt with the funding pinch point, the real problem remains a lack of growth as shown by yesterdays Italian Q3 GDP numbers, which showed a contraction of 0.2%.

ON WEDNESDAYs PREMIUM TRADES show Ashrafs strategy of favouring CAD & oil continues to make up for those unfilled trades. Here are is direct access to those remaining trades http://ashraflaidi.com/products/sub01/access/?a=573

Italian October retail sales edged up 0.1% m/m vs expectations of -0.2% and a revised -0.3%, and -1.5% y/y frpm -1.6%. Markets have yet to await the outcome of a key confidence vote for new PM Mario Monti in the Italian Senate on the latest austerity budget.

Hungary was downgraded to junk status by Standard and Poors while the Greek PSI talks are on the verge of collapse as hedge fund Vega threatened to sue Greece for excessive haircut.

Final US Q3 GDP figures are expected to be confirmed and weekly jobless claims are expected to have increased slightly at 13:30 GMT. The final University of Michigan confidence numbers for December is due at 15:00 GMT.

The huge take up in the ECBs 3-year lending operation jarred the euro to nearly 1.32 but it slipped to 1.3050 at the end of the day on some weak details. CAD was the top performer on better-than-expected retail sales; CHF lagged after the fin min signaled the potential for new measures to weaken the franc. New Zealand GDP figures released early in the Asia-Pacific session were a touch better than expected. A note on our Premium Wednesday trades is below.

The LTRO morphed into an opportunity to sell euros after a brief short squeeze and reports of trouble at Dexia. News that Italian banks issued 40B in government-backed debt for the purpose of investing in the ECB program undermined the LTRO result somewhat.

We take a more constructive view. Even if the banks exploit ECB lending operations it may still help to solve the sovereign crisis, so long as the proceeds are reinvested in government debt and/or used to shore up capital levels. During the US credit crisis a number of emergency Fed programs amounted to no more than a massive subsidy to cash-stricken banks. It was undoubtedly back-door corporate welfare but the market is more concerned with stability than principle at the moment.

With a whopping 489B of LTRO funds now in the hands of the banks, some of the money will surely find its way into sovereign debt issues. If not, the euro will crumble.

Elsewhere, the moves in markets were relatively tame. CAD outperformed with Nov retail sales rising 1.0% compared to the 0.4% expected. EUR/CHF rose as high as 1.2240 after fin min Widmer-Schlumpt said a panel is considering new measures to weaken the franc, including capital controls and negative interest rates. The S&P 500 gained 0.2% to 1244.

New Zealand GDP climbed 0.8% in Q3 compared to the 0.6% expected but the details of the report painted a considerably less positive picture. Downward revisions to earlier quarters put the y/y rate of growth down to 1.9% compared to the 2.2% expected. Also the rise in Q3 appeared to be due to unsustainable inventory rises and consumption boosted by the Rugby World Cup.

There are no other events scheduled for the Asia-Pacific session.

ABOUT WEDNESDAYs PREMIUM TRADES:

Wednesday's Premium trades were titled "Favouring CAD & Oil", a theme that will surely re-appear quite few times. It was another day of seeing several trades go unfilled despite moving in our predicted direction. None of the AUDUSD shorts were filled, Only 1 of our shorts in silver was filled, while only 1 of the US crude longs hit all targets, with the other long unfilled. Here are is direct access to those remaining trades including, gold, ES and AUDNZD http://ashraflaidi.com/products/sub01/access/?a=573 Non subscribers can start a trial here http://ashraflaidi.com/products/sub01/

Riskier assets soared after the LTRO announcement but declined equally quickly; 3 year LTRO allotted nearly EUR 490 bln; MPC minutes reveal unanimous votes, some members note that more QE may be needed. UK net public borrowing soared. Market turns to Canadian retail sales, US existing home sales, Eurozone confidence and later to NZ GDP. New Wednesday Premium Trades are up focus on US crude & CAD.

USD was initially lower across the board, especially immediately after the ECB LTRO was announced. However, sentiment reversed sharply and the USD was able to recover all losses. Biggest relative strength loser is CHF. Major European equities are higher by 0.5% to 1%.

Euro was inching higher ahead of the ECB LTRO announcement. In its first three year LTRO, the ECB allotted EUR 489.2 bln considerably more than expected EUR 300 bln which caused a spike higher in riskier assets. In its three months LTRO, the ECB allotted almost EUR 30 bln. EURUSD soared nearly to the 1.32 figure immediately after the release but has quickly given up its gains perhaps as the market could become concerned that banks would overexpose themselves to the Eurozone debt.

Periphery-German 10 year yield spreads widened again after they narrowed following the ECB announcement. Bunds traders note that low liquidity is causing choppy price action.

BoEs MPC minutes revealed that all members voted to hold rates steady during the 12/8 MPC meeting and that they agreed there was a little merit in changing asset buying. However, some noted that the outlook has deteriorated and that more QE may well be needed. In other news, public sector net borrowing has jumped in November to GBP 15.2 bln from previous GBP 3 bln. However, this increase was expected. GBPUSD trades below 1.57 after reaching a high at 1.5770.

Most of Tuesdays premium longs in Aussie, ES and CAD were unfilled due to rapid market moves, while both of the gold shorts were stopped out. Here are Wednesdays premium trades contain with a focus on oil, Aussie and CAD CAD http://ashraflaidi.com/products/sub01/access/?a=573 Nonsubscribers can click here: http://ashraflaidi.com/products/sub01/

The NY session starts at 8:30 am ET with Canadian retail sales that are seen lower at 0.5% in October from 1% in September. Core sales are also seen lower at 0.3% from 0.5%.

US existing home sales are due at 10:00 am and are anticipated to rise in November to 5.09M from 4.97M. December Eurozone consumer confidence which is due at the same time is expected to decline to -21 from -20.4

Later in the session at 4:45 pm New Zealand will announce Q3 GDP growth that should reach 0.6% from 0.1% q/q and 2.2% from 1.5% y/y.

Moodys fires a warning shot at the UK ahead of the latest public finance data and Bank of England minutes, ECB 3 and 36 month LTRO awaited, Italy GDP expected to contract, Bank of Japan unchanged. Tuesday's Premium trades are up.

Markets await the announcement from the ECBs the latest long term refinancing operation (LTRO) expected to be due at around 10:00 GMT. Yesterdays sharp drop in Spanish bond yields suggests that banks are starting to buy Spanish and Italian debt again, on a short term basis taking advantage of the higher yields with a view to financing by way of the ECBs 3 month and 36 month repos and pocketing the carry. Expectations are for a take up of around 200bn-300bn.

Todays UK November public finance data is expected to jump sharply to 16.6bn from Octobers surprisingly low 3.4bn. The latest minutes are expected to reveal that the Bank while mindful of concerns about growth, are in no hurry to pre-commit to further asset purchases in the short term, a point made recently by Spencer Dale the Banks chief economist.

The level of inflation remains a concern and the likelihood of further QE remains unlikely until the bank has visibility on the January numbers for proof of a significant drop off as this years VAT rise drops out.

Italian Q3 GDP contracted by 0.2% q/q from +0.3% in Q1 and rose 0.2% y/y from a revised +0.7%/ as austerity measures deepen further.

Moodys warned yesterday on the UKs diminishing ability to withstand shocks, shifting the debate about ratings away from Frances rating and back onto the UK. The agency reaffirmed the rating however and warned that the current fiscal plan must be stuck to. Todays release of the latest Bank of England minutes and public finance data arent expected to make very positive reading.

Tuesdays latest Intermarket Insights include EURUSD, AUDUSD, USDCAD, AUDNZD & ES along with our charts comparing Net Spec positioning vs EUR 1 Mth Volatility . Direct Access here: http://ashraflaidi.com/products/sub01/access/?a=572 Non Subscribers click here: http://ashraflaidi.com/products/sub01/

The Bank of Japan left interest rates unchanged this morning though it warned of the effects that the European debt crisis was having on its economy, as well as the flooding in Thailand. Slowing exports are also a worry, as the country posted its second monthly trade deficit in a row, with exports down 4.5%.

The lack of policy change could well suggest that like the Fed the Bank of Japan could well be keeping its powder dry in the event conditions deteriorate further in the space of the next few weeks, and in 2012. The recent stability in the yen has probably helped them in that regard.

This is a complete wrap-up of the European US sessionss (Spain auctions, IFO, US housing), along with a preview for Asia. NZD and AUD were the top performers while USD and JPY lagged. The BOJ decision is the highlight of the Asia-Pacific session. Latest Premium Trades are below.

The surprisingly strong IFO survey and Spanish bill auction set the stage for continued gains in US trading.

German IFO business climate improved in December to 107.2 from previous 106.6. Other components also helped to underpin riskier assets as expectations improved to 98.4 from 97.3 and current assessment remained steady at 116.7 better than expected 116. German PPI rose 5.2% in November, slightly lower compared to previous 5.3% and finally GfK consumer confidence survey remained steady at 5.6.

Another reason for the improved risk appetite came from Spain as it exceeded its target EUR 3.5-4.5 bln and sold EUR 5.64 bln worth of bills today with significantly lower yields compared to the previous auction. 6 month bill sold at 2.43% from previous 5.23% and 3 month bill sold at 1.73% compared to 5.11%. Bid to cover was solid 4.06 and 2.86 respectively. 10 year periphery-German spreads started to narrow immediately after the auction.

In other news, Swedish Riksbank cut its repo rate 25 bps to 1.75% as expected citing slowing economy and deteriorating outlook.

In the UK, December CBI retail sales bested expectations and reached the highest point since May as data improved to +9 in December from previous -19. and Canadian CPI slowed in November to 0.1% from previous 0.2% (core CPI 0.1% from 0.3%) m/m but remained steady at 2.9% (core steady at 2.1%) y/y.

The momentum picked up after US housing starts climbed to 685K (a high since April 2010) from 627K on a surge in multi-family dwellings.

The S&P 500 gained 3.0% to 1241 but it would be foolish to pin the entire gain on housing starts, especially after the House blocked legislation that would have extended payroll tax cuts. Instead, it appears as though low liquidity and year-end repositioning spurred a large portion of the rally.

Tuesdays latest Intermarket Insights include EURUSD, AUDUSD, USDCAD, AUDNZD & ES along with our charts comparing Net Spec positioning vs EUR 1 Mth Volatility . Direct Access here: http://ashraflaidi.com/products/sub01/access/?a=572 Non Subscribers click here: http://ashraflaidi.com/products/sub01/

EUR/USD climbed as high as 1.3133 in early US trading but sunk back below 1.31. The declines came after a warning from Fitch about downgrades to 24 European banks on increased prospects for volatility and funding problems. Further fuelling the decline was a downgrade in the IMFs 2012 forecast to 1.0% from 1.9%.

Asia-Pacific Preview

At 2350 GMT, Japan releases trade data for November. The total trade deficit is expected at 450B yen with the adjusted merchandise deficit at -305.7B yen. The data is unlikely to drive JPY trading.

The Bank of Japan decision will be announced at roughly 0330 GMT after a two-day meeting. The BOJ continues to offer dollar funding in unlimited amounts but demand has drastically increased in the past week due to the European crisis and the year-end funding crunch. With rates at 0.10% and the central bank already engaged in a large number of QE and loan programs, the market is not expecting any substantial new programs.

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Ashraf's interview on CNBC w/ M. Bartiromo about what's needed from the ECB & EU before we can talk breakdown & exits http://video.cnbc.com/gallery/?video=3000063290 Talking to ALARABIA TV (Arabic) and reconciling the improving US & German data against deteriorating debt lanscape and lack of EU agreement regarding bolstering EFSF/ESM & IMF funding http://www.youtube.com/watch?v=opUhvR9Mlus&feature=youtu.be

Strong IFO figures from Germany and unexpectedly strong US housing starts are contributing to higher risk appetite. But markets await Wednesdays new three-year long term refinancing operation or LTRO from the ECB. Consensus for the take-up ranges between EUR 250-300 billion. See the latest Intermarket Insights on EURUSD, AUDUSD, USDCAD, AUDNZD & ES along with our charts comparing Net Spec positioning vs EUR 1 Mth Volatility . Direct Access here: http://ashraflaidi.com/products/sub01/access/?a=572 Non Subscribers click here: http://ashraflaidi.com/products/sub01/

German IFO set to remain weak on the back of Europe concerns, Spain to sell T-Bills, UK Consumer confidence bounces back while retail sales could show slight improvement. RBA minutes show more worries over Europe spillover. Latest Premium trades for Tuesday are due ahead of the US session.

Sentiment remaining fragile after EU finance ministers made limited progress on bi-lateral IMF loans, with the UK saying it would only contribute as part of a wider global agreement, and only if other countries outside the EU are party to the plan. Ministers were also unable to agree on progress with regard to the ESM in the face of Finnish opposition to qualified majority voting.

Todays release of the latest German December IFO numbers on business climate and current expectations are expected to show further deterioration. The business climate index is expected to decline to 106 from 106.6, while current expectations index are expected to slip to 97 from 97.3.

German GFK consumer confidence is also expected to remain weak at 5.5, while producer prices are expected to slip back to 5.2%.

Spain is expected to sell up to 4bn worth of three to six month T-Bills, later today, after the new PM admitted that the Spanish economy was likely to miss its deficit targets in the fourth quarter due to ongoing pressures caused by the recession. The country is also expected to contribute an extra 14.5bn as part of the bi-lateral loan agreement to the IMF.

After todays IFO survey, focus shifts to Wednesdays new three-year long term refinancing operation or LTRO (maturity of January 2015) from the ECB. Consensus for the take up ranges between EUR 250-300 billion. Some estimates stand as high as EUR 500. It remains assumed that banks will use these funds reinvest in sovereigns debt to benefit from the yield differential or carry trade.

Todays CBI Dec retail sales seen improving to -14 from -19 in November. The UK consumer remains under the spotlight in the lead-up to Christmas after the latest Nationwide consumer confidence seen at 40 in Nov from 36 in October.

The minutes of the Reserve Bank of Australia's 0.25% rate cut showed a split over the decision as well as rising over concern the chill winds from Europe. Given that consumer confidence remains fragile the bank highlight the risks of a slowdown in China and a concern about a worsening jobs market. Even so the bank indicated that further rate cuts were unlikely in the near term unless the European situation deteriorated further noting that the Australian economy continued to show signs of growing.

In the US the latest November housing starts and building permits data is due out.

Our latest trades include 7 existing trades (2 EURJPY, 2 USDCAD, 1 AUDNZD, 2 gold), Both AUDUSD were stopped out, 1 EURUSD & 1 AUDNZD hit all targets, while none of the 2 silver trades were filled. Direct access to these trades is found here: http://ashraflaidi.com/products/sub01/access/?a=571 Non Subscribers can click on here: http://ashraflaidi.com/products/sub01/

The euro posted small losses in a quiet session on Monday lower despite a broader risk-averse theme. Early Asian trading has been characterized by solid gains in AUD and NZD after the RBA minutes were less dovish than expected. The link to Ashrafs interview with CNBCs Maria Bartiromo is below.

Draghi reiterated that treaties prevent the ECB from increasing government bond purchases to fight the crisis and said substantial risks to the economy remain.

Late in US trading Eurozone finance ministers announced an agreement to on additional bailout funding via the IMF. But the 150 billion fell short of the 200 billion proposed at the Dec. 9 EU leaders summit.

Ashraf's interview on the euro & ECB on CNBC http://video.cnbc.com/gallery/?video=3000063290

The stock market took the news much worse than FX as the S&P 500 fell 1.17% to 1205 but the euro was able to hold above 1.30 after opening the week at 1.3045.

Large banks were also hard hit after the WSJ reported that the Fed will embrace rules requiring systemically important institutions to hold more capital in reserve. Basel officials also said lenders should reveal the full list of instruments they are holding to meet those capital requirements.

AUD/USD jumped 40 pips after the RBA minutes said a modest rate cut was appropriate and policymakers noted some positive economic signals, saying growth in Asia is solid and that the domestic economy is slightly stronger than in the middle of the year.

Our latest trades include 7 existing trades (2 EURJPY, 2 USDCAD, 1 AUDNZD, 2 gold), Both AUDUSD were stopped out, 1 EURUSD & 1 AUDNZD hit all targets, while none of the 2 silver trades were filled. Direct access to these trades is found here: http://ashraflaidi.com/products/sub01/access/?a=571 Non Subscribers can click on here: http://ashraflaidi.com/products/sub01/

European finance ministers hold a conference call; Eurozone current account deficit widened and construction output fell; BoEs Paul Fisher comments weigh in on the GBP. Canadian wholesale sales edge up, NAHB housing market awaited as well as ECB president Mario Draghi's testimony.

USD is mixed in the ongoing US session; weaker against NZD, CAD and CHF and stronger against GBP. The relative strength winner is CAD followed by CHF. Major European equities are higher by about 0.5% to 0.7%.

European finance ministers will hold a conference call today scheduled to begin at 9:30 am ET in which they will discuss EUR 200 bln in bilateral IMF loans and details of the fiscal union, such as stricter budget rules, negotiated at the EU summit on 12/9. Considering that market sentiment deteriorated rapidly after the EU summit, it would be surprising to see any lasting optimism based on the result of today's conference call.

On the data front, Eurozone seasonally adjusted current account deficit widened to EUR -7.5 bln in October from EUR +2.2 bln in September while the non seasonally adjusted deficit widened to EUR -1.7 bln from previous EUR -0.7 bln. Eurozone construction output fell in October -1.4% from previous -1.5% m/m and -2.8% after +0.1% y/y . September was revised lower to -1.5% from -1.3%.

GBP weakened slightly after BOE's policy maker Paul Fisher said that present situation is potentially more dangerous than 2008 and that downside risks from Eurozone are bigger than inflation. He further said that UK banks are not as robust as the BOE would like. GBPUSD oscillates around the 1.55 figure.

Canadian wholesale sales rose 0.9% in October from previous +0.5%. US NAHB housing market index due at 10:00 am ET is seen at 21 in December from 20.

Market volatility could increase at 10:30 am ET when ECB president Mario Draghi testifies before the EU economic and monetary committee. This comes one day after Draghis interview to the FT warning about the consequences of nations leaving the Eurozone as well as the breakup of the single currency area.

7 of Fridays Premium trades are in progress. 1 EURUSD long & 1 AUDNZD short hit all targets. The latter trade has stood for 2 weeks. Direct access to these trades is found here: http://ashraflaidi.com/products/sub01/access/?a=571 Non Subscribers can click on here: http://ashraflaidi.com/products/sub01/

North Koreas Kim Jong-il dies, Ratings agencies overhang remains a threat, Eurogroup set to discuss IMF bilateral loans and other fiscal compact measures, US Republicans set to vote on payroll tax cut bill. European markets to open in the red after Asia selloff, with EURUSD struggling to hold $1.30.

The overnight of death of North Koreas leader Kim Jong-il has added an additional element for markets to think about with uncertainty over who has control in this secretive authoritarian regime.Markets were always likely to remain cautious this week even without the overnight news, as they absorbed the latest downgrades and warnings from the ratings agencies at the end of last week. With markets likely to remain thin markets are still awaiting Standard and Poors final assessment of the EU summit 10 days ago with the fear that France could well lose its triple A rating, and with the EFSF lose its rating as well.

Moodys decision to downgrade Belgium two notches wasnt too much of a surprise given their exposure to Dexia and their latest growth figures showing contraction, and their yields could well come under pressure again this week.

Fitch also got in on the act, but decided to just cock the trigger on Friday and not actually pull it, by putting six European countries on negative watch with a view to a downgrade, including France, Italy and Spain. Their assessment that a comprehensive fix to euro crisis is probably beyond reach showed that a downgrade is probably only a matter of time.

7 of Fridays Premium trades are in progress. 1 EURUSD long & 1 AUDNZD short hit all targets. The latter trade has stood for 2 weeks. Direct access to these trades is found here: http://ashraflaidi.com/products/sub01/access/?a=571 Non Subscribers can click on here: http://ashraflaidi.com/products/sub01/

Eurogroup finance ministers are expected to hold a teleconference on the latest fiscal compact as well as the make-up of the extra 200bn worth of bi-lateral loans, of which the UK is expected to cough up around 30bn, a figure already rejected by UK PM Cameron at the end of last week.

In the US, the ongoing shenanigans between Republicans and Democrats continue to play out with the Democrats passing the extension of the Bush payroll tax cut bill in the Senate at the weekend. The Republican-dominated House is due to vote on it tonight with the risk of a rejection. Economists have stated that the failure to extend the measures into year would hurt a U.S. recovery already exposed to the European crisis. Some have even suggested it could cut as much as 1% off U.S. economic growth.

France avoided a downgrade on Friday but its outlook was lowered. Belgium did get downgraded by 2 notches from Moodys late Friday. In the US, a government shutdown was avoided with a last-minute deal. NZD and AUD outperformed on Friday while fellow commodity currency CAD lagged. EUR speculative shorts hit a new record high against the dollar. Fridays premium trades are in progress. The EUR long is all done

On Friday, the euro got an early life in US trading after Italys parliament voted in favour of austerity measures. EUR/USD climbed as high as 1.3084 but the sellers attacked almost immediately, pushing the pair back to 1.30.

Later, Fitch affirmed Frances AAA-rating but lower its outlook. At the same time, it put Spain, Italy Ireland and others on creditwatch negative, meaning a downgrade is likely before the end of January. The move was expected after similar announcements from Moodys and S&P.

Minutes before the end of trading, Moodys downgraded Belgium by two notches. Another negative headline was the withdrawal of next weeks planned Portuguese bond sale.

US lawmakers met in a rare Saturday session to approve a $915B bill to avoid a government shutdown. The legislation will extend a payroll tax cut and unemployment benefits for two months. The success of the bill should boost risk appetite at the open but the effect will be minimal our feeling is that the market priced in a last-minute deal.

US economic data was a minor factor as headline CPI was reported at 2.4%, slightly below the 2.5% expected. The lower inflation numbers and Fed QE operations sparked a rally in bonds that, in turn, weighed on USD/JPY.

The Canadian dollar lagged after data showed foreigners investing less in Canadian securities. The data is generally ignored so the drop in CAD at the same time was more likely due to oil prices and/or year-end flows.

The unusual dichotomy in commodity currencies underscores the year end effect. Liquidity will continue to dry up in the year ahead and the market will grow increasingly choppy and inexplicable.

Fridays premium trades are in progress. See which 7 of Fridays Premium shorts are in progress. Direct access to these trades is found here: http://ashraflaidi.com/products/sub01/access/?a=571 Non Subscribers can click on here: http://ashraflaidi.com/products/sub01/

Gold rebounded $22 after 4 days of selling but the 200-day moving average at $1620 is now acting as resistance. The S&P 500 gained 0.3% to 1219.

CFTC Positioning Data

Speculators continue to gain confidence in euro shorts as the net EUR shorts hit a record short at 116K from -96K

Yen longs fell by 3K to +36K.

The GBP position improved to -40K from -44K.

CAD made a similar improvement to -14K.

AUD longs expanded 4K to +35K.