Intraday Market Thoughts Archives

Early Leaks about an avalanche of European downgrades led to messy, risk averse trading to close out the week. On Friday, NZD and USD were the best performers while EUR and CHF lagged. In Fridays CFTC positioning data, EUR shorts hit another record. Link to Ashraf's euro interview w/ Maria Bartiromo is below.

S&P downgraded nine eurozone countries after the US close: Italy, Spain and Portugal were cut two notches; France and Austria lost their top ratings, slipping one notch to AA+; Ireland was affirmed at BBB+ but the outlook lowered to negative.

The lone good news was Germany affirmed at AAA and its outlook revised to stable. Every other eurozone nation now carries a negative outlook, except Slovakia, which was downgraded to A from A+.

Euro trading was disjointed ahead of the official announcement because ratings agency policy dictates that leaders be notified 12 hours in advance of a downgrade. Leaks began shortly after the notices, sending EUR/USD down as much as 250 pips to a 16-month low of 1.2623.

The downgrades werent the only factors hurting the euro. Greek debt restructuring talks broke down on Friday and the ECB criticized a draft of Europes fiscal discipline treaty, saying it was substantially watered down and could be easily circumvented.

In all the excitement, economic data was nearly forgotten with the U of Mich consumer sentiment survey improving to 74.0 from 69.9, beating the 71.5 consensus.

Ashraf gives his euro outlook with CNBCs Maria Bartiromo on Friday as the downgrades were unfolding http://video.cnbc.com/gallery/?video=3000067443

CFTC Positioning Data

Overall USD positions climbed 10% to $17 billion, with only AUD, NZD and JPY moving positively against the dollar. That was far outweighed by increases in EUR, GBP and CAD sellers.

EUR shorts rose to a stratospheric 155K, up 16K on the week and another record. The next most-negatively held currency was GBP, where shorts increased 4K to 36K. That was followed by the unloved CAD where shorts increased 5K to -29K.

Yen longs increased 3K to 60K to the highest since March 2008, a danger sign for those worried about intervention. AUD continues to be the darling of the market with longs expanding 7K to 53.5K.

Ashraf will be on CNBC's Closing Bell with Maria Bartiromo at 16:30 EST, 21:30 GMT discussing the all-but confirmed news of France downgrade. Last time Ashraf was on the show, he pointed out the continued divergence between EURUSD & equities and the need for ECB to finally download QE version I.

EURUSD sells off after Italian auction resulted in lower yield but also lower bid/cover ratio; Eurozone trade surplus grew; ECB deposit facility at a record high again. Market turns to US and Canadian trade balance data and UoM consumer confidence. Details on latest Premium Intermarket Insights are below.

The recovery that started yesterday after successful Spanish and Italian auctions ran out of steam today as EURUSD sold lower to below 1.28. Surprisingly, the decline started right after Italy was able to reach its target and sell EUR 4.75 bln worth of bonds. The largest auction was EUR 3 bln 2014 BTP that resulted in lower average yield at 4.83% from previous 5.62%. However, bid to cover declined to 1.215 from 1.364. Perhaps, Fitch's threat of Italian downgrade that should be resolved by month's end stayed on traders minds.

European data was limited today to Eurozone trade balance that in November reached the highest surplus in nearly two years at EUR 6.1 bln from previous EUR 0.5 bln . Exports rose 3.9% while imports remained steady. Solid export growth could elevate fears of a severe downturn.

In other news, the ECB said that the deposit facility reached a new high at EUR 489.906 bln which is EUR 3 bln more than on Tuesday and MNI reports that ECB ex-president J. C. Trichet sought clearance to become the chairman of Bruegel institute, European think tank working in the field of international economics.

The New York session will kick off at 8:30 am ET with trade deficit that is expected to widen in November to USD -44.8 bln from previous USD -43.5 bln followed by University of Michigan consumer confidence due at 9:55 am that is seen higher in January at 71.5 from December's 69.9.

Canadian statistics office will release the latest trade balance data at 8:30 am with trade deficit likely widening to CAD -0.5 bln in November from previous CAD -0.89 bln.

Our Premium Intermarket Insights include 10 new trades on including EURUSD, AUDUSD, EURGBP and US crude, with existing trades in CADJPY, USDCAD, USDJPY and silver The trades are for Fridays Asia/EU/US sessions http://www.ashraflaidi.com/products/sub01/access/?a=582 Non subscribers can get access here: http://www.ashraflaidi.com/products/sub01

Italian 3-yr bond auction may extend euro gains, UK producer prices set to slip back as inflation pressures ease, US December trade balance due. 10 new Premium trades are added below, 2 of which are nearing their target in EURUSD longs.

The latest euro rebound could be a precursor to an even stronger recovery in the short term without undermining the overall weaker tone seen in recent weeks. Yesterdays positive outcomes to both the Spanish bond auction and Italian bills auction saw investors become more comfortable holding sovereign bonds, despite economic data continuing to exhibit worrying weakness.

This could also stem from cheap 3-year funding made available by the ECB last month as banks play the carry differential between the funding and the higher yields on government debt.

Todays auction of three year Italian debt (results around 10 am GMT) could well see yields go the same way as Italy looks to sell 3bn of 2014 paper. The real test will come in a couple of weeks when Italy tries to sell longer term paper of between five and ten year paper.

UK December input prices are expected to slip 0.2% m/m, with the annualised measure dropping back below 10% to 9.1%. Output prices are expected to be flat, down from 0.2% rise in November.

In the US later the latest trade balance numbers for December are due out along with the preliminary Michigan confidence numbers for January.

10 NEW TRADES are added on Thursday evening, including EURUSD, AUDUSD, EURGBP and US crude, with existing trades in CADJPY, USDCAD, USDJPY and silver The trades are for Fridays Asia/EU/US sessions http://www.ashraflaidi.com/products/sub01/access/?a=582 Non subscribers can get access here: http://www.ashraflaidi.com/products

A hint of optimism from Draghi sparked the euro while the US dollar was broadly weaker on soft economic data. CHF and EUR were the best performers; NZD and USD the laggards. Asia-Pacific trading closes out the week on a quiet note. Gold & silver surpass oil as appetite stabilizes. Friday's US session may be thin ahead of Mondays Martin Luther King Holiday. 10 new Premium trades are added below.

The euro climbed to a one-week high of 1.2845 after Draghi noted a weakening of economic activity but turned a mildly optimistic note saying some survey data seem to indicate some stabilization at low levels. The ECB held rates and Draghi said policy will remain accommodative.

The ECB leaders comments on the LTRO made it clear that the facility is aimed at providing liquidity and stability to banks. He noted that sovereign yields have fallen but the indication was that this was a secondary goal.

Some money is starting to find its way into peripheral bonds, as the sales in Italy and Spain showed but its far too soon to declare a permanent shift.

10 NEW TRADES are added on Thursday evening, including EURUSD, AUDUSD, EURGBP and US crude, with existing trades in CADJPY, USDCAD, USDJPY and silver The trades are for Fridays Asia/EU/US sessions http://www.ashraflaidi.com/products/sub01/access/?a=582 Non subscribers can get access here: http://www.ashraflaidi.com/products

The US dollar continues to trade in more symmetrical terms with domestic economic data. Jobless claims, retail sales, business inventories and monthly budget data all disappointed. Especially concerning were indications that the US consumer was not as strong during the holidays as hoped. Sales ex-autos and gas were flat versus the 0.4% growth expected.

The S&P 50 gained 0.2% to 1296. Oil and gold strengthened early in US trading, hitting $1681 and $103 respectively, before falling back to $1648 and $99.15. The oil declines came on comments from an EU official an Iranian oil embargo will take at least six months to allow some countries to arrange alternative supply.

Strong Eurozone auctions helped lift EURUSD above 1.28, while CAD weakened but fared robustly considering the $5 decline in US crude oil. Our latest Premium Intermarket Insights for Thursday night look at fresh positioning in EURUSD, AUDUSD,EURGBP and US crude, with existing trades in CADJPY, USDCAD and silver. The trades are for Fridays Asia/EU/US sessions http://www.ashraflaidi.com/products/sub01/access/?a=582 Non subscribers can get access here: http://www.ashraflaidi.com/products/

BOE kept rates and asset purchases unchanged; ECB holds steady at 1.0%, strong bond auctions lifted the common currency; Italian industrial production rose; Eurozone industrial production declined; UK manufacturing and industrial production both fell. ECB press conference, retail sales and jobless claims are next.

The USD is lower in the ongoing session against all majors. European equities are higher by 1.1% to 1.5% and relative strength winners are AUD and CHF.

Metals extend gains, with both gold and silver hitting 4-week highs at 1658 and 30.67 respectively. See our latest silver charts at our latest Premium Intermarket Insights in here: http://ashraflaidi.com/products/sub01/access/?a=580

Solid bond auctions from Spain and Italy underpinned the Euro and helped it to recover to 1.2760 after touching 1.27 low earlier during the session. Italy reached its target and sold EUR 12 bln worth of bonds today. May 2012 BOT sold with average yield 1.644% with bid to cover at 1.853 while January 2013 BOT averaged 2.735%, considerably lower from previous 5.952% with bid to cover falling to 1.47 from 1.92.

The Spanish auction was even better as Spain sold nearly EUR 10 bln worth of bonds, significantly above the EUR 4-5 bln target. The biggest auction that reached EUR 4.27 bln was for July 2015 bond that averaged 3.384% with 1.797 cover. Spain was already able to complete 11.6% of its 2012 gross funding needs.

On European data front, Italian industrial production rose 0.3% in November after October's -0.9% contraction and Eurozone's industrial production declined -0.1% m/m and -0.3% y/y.

In the UK, November manufacturing production fell -0.6% y/y after 0.1% growth seen in October while industrial production dropped -3.1% y/y from previous -2.1%.

The BoE chose the wait and see approach, held rates steady at 0.5% and kept QE unchanged at 275 bln. However, falling manufacturing and industrial production imply a higher chance of more QE in the months ahead.

The ECB kept rates unchanged at 1.0% as widely expected. It is not anticipated to announce any new additional easing steps at the 8:30 EST conference.

The New York session starts at 8:30 am ET with ECB press conference that should provide hints about future easing or new liquidity enhancing mechanisms and is likely to set the tone for trading for the rest of the session.

December retail sales are due at the same time and are seen higher at 0.3% from previous 0.2% (core also expected to rise 0.3% from 0.2%). Jobless claims are anticipated marginally higher at 373K from 372K and November business inventories are seen lower at 0.4% from 0.8%.

The latest tactical trades on CHF peg and the current positioning in USDCAD and CADJPY are found here http://ashraflaidi.com/products/sub01/access/?a=581 and here http://ashraflaidi.com/ products/sub01/access/?a=580

Bank of England QE expected to remain unchanged, ECB rates seen unchanged, Spanish and Italian bond auctions due, China CPI eases further prompting easing speculation. The latest tactical trades on CHF and the current positioning in USDCAD and CADJPY are linked below.

Todays Bank of England meeting isnt expected to offer much in the way of surprises considering the recent upside data surprises. Todays release of industrial and manufacturing production figures for November may not paint a particularly bright picture but it has been well flagged up that the MPC wont pre-commit to further easing until they see the Q4 GDP numbers later this month.

Industrial production is expected to slip 2.2% annually, but improve from Octobers 0.7% slide to post a figure of -0.1%.

Manufacturing production is also expected to similarly improve on the monthly measure from -0.7% in October to -0.2%, while the annualised measure is expected to slide from positive to negative territory of -0.5%.

Todays European Central Bank decision will likely assess the need for further easing in the wake of two successive rate cuts as well as the launch of last months unprecedented three year Long Term Refinancing Operation (LTRO). While the ECB is likely to stand pat today, it could provide hints about the timing of any further policy action, as well as the downgrading of growth forecasts in the wake of the latest economic data.

Yesterdays solid demand for Germanys 5 year bund is unlikely to translate across to today's Italian and Spanish bond auctions which will be closely monitored for evidence of lower yields and increased demand. Spain is looking to sell 5bn of 2015 and 2016 bonds while Italy is looking to sell 12bn of bonds.

The latest tactical trades on CHF peg and the current positioning in USDCAD and CADJPY are found here http://ashraflaidi.com/products/sub01/access/?a=581 and here http://ashraflaidi.com/products/sub01/access/?a=580

Last night's Chinese December CPI slipped back to 4.1% y/y from Novembers 4.2% y/y, suggesting that the Chinese central bank may ease policy further in the coming days and weeks. Markets may interpret slowing China inflation as a positive because it allows the PBOC to ease policy further and respond to the deepening slowdown to Europe --China's biggest export market.

The euro fell to a fresh 15-month low on yet another round of French downgrade rumours. GBP lagged considerably ahead of Thursdays BoE meeting, while NZD and USD were the top performers. A highly anticipated Chinese CPI report headlines the upcoming session. See Ashraf's latest tactical trades on CHF and the current positioning in USDCAD and CADJPY.

Rumours that France had been given a 12-hour downgrade notice began just ahead of the US session. The talk continued until the European close and sparked selling to 1.2661. Officials later shot down the rumours and EUR/USD rebounded above 1.27, but still declined three-quarters of a cent on the day.

Another story that weighed on the euro is regards estimates from Lagarde that Greece may need 10s of EUR billions more in bailouts.

Position covering and thinning trading ahead of the ECB decision and periphery debt sales should keep EUR/USD from tracing out fresh lows in the hours ahead.

Overall risk sentiment was mixed but the US dollar was broadly stronger, in part due to the Beige Book, which said the economy expanded at a modest to moderate pace in all 12 Fed regions. Comments about consumer spending and manufacturing were positive but jobs and housing remain in a deep slump. Overall, a picture of a US economy on somewhat more solid footing is emerging. QE3 in the first half of the year is sliding toward a remote possibility.

Asia-Pacific Preview

Chinese CPI is the major release of the day at 0130 GMT. The November reading of 4.2% prompted forecasts for a cut in the reserve ratio before the Jan. 23 Chinese New Year holiday. The consensus estimate is for a further slowdown to 4.0% y/y with a 0.3% monthly rise. A print below 4% would be the lowest since September 2010, in which case should spur speculation for an RRR reduction, followed by a decline in the actual benchmark lending rates. The less-important producer price index is expected up 1.8% y/y compared to 2.7% in November. An upside inflation surprise will hit AUD particularly hard but all risk assets will fall.

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Japan's current account surplus fell 85.5% y/y to yen 138.5 bln in Nov vs expectations of yen 235.4 bln, -75.4%.

This weeks resignation of SNBs president Phillip Hildebrand may not mean the end of the Swiss franc peg. Although Mr. Hildebrand has been portrayed as the engineer of the EURCHF peg, his resignation is unlikely to reverse Septembers decision to establish a franc peg for the first time since 1978. While expect the EURCHF 1.20 to hold, our strategy to trade the franc into the coming months is outlined and charted in the following 800-word piece http://ashraflaidi.com/products/sub01/access/?a=581

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Fitch's comments send Euro lower; German GDP at 3%; UK trade deficit widens; German and UK decent bond auctions; ECB deposit facility at another record high. Market turns to crude oil inventories and later to Beige book. Commodity FX steady across the board, led by the Kiwi, Norwegian Krone and Canadian dollar. Ashraf's latest Premium Intermarket Insights arguing for CAD crosses.

USD is higher across the board, European equities are lower by about 0.7%, relative strength losers are EUR and CHF.

USD surges higher in the last two hours on Fitch's comments that ECB must do more to prevent cataclysmic euro collapse.

On the data front, German annual GDP was 3%, lower from previous 3.7% suggesting stronger momentum than originally projected. However, considerable slowdown in 2012 and the possibility of a recession in Q1 is still probable. The annual budget deficit improved to -1% of GDP from previous -4.3% of GDP.

In the UK, visible trade deficit widened in November to GBP -8.64 bln from October's GBP -7.86 bln. Both lower exports (-1.5%) and higher imports (+1.1%) contributed. Imports included record purchases of medical chemicals and crude oil.

The bond market saw two decent auctions today. Germany sold EUR 3.153 bln 5 year bonds with the yield below 1% for the first time. The average yield was 0.9% from previous 1.11% and bid to cover improved to 2.8 from 2.1. UK sold GBP 3 bln of 2021 Gilt with lower average yield at 2.085% from 2.382% while bid to cover improved to 2.15 from 1.61.

As has become the norm these days, deposits at the ECB broke to a fresh record at EUR 485.9 bln from yesterday's EUR 481.9 bln.

Market volatility could increase today at 9:00 am when Atlanta FED president and alternate FOMC member Dennis Lockhart speaks on the US economy in Atlanta.

US data is limited today to crude oil inventories that are due at 10:30 am ET and are expected to decline to 0.9M barrels from 2.2M barrels. Given the recent strength in oil and higher CAD, the market impact could be stronger today than usual.

The FED will release its beige book at 2:00 pm.

EURUSD shorts hit all targets but Aussie longs and oil shorts were stopped out. The 2 USDCAD and 2 CADJPY remain in progress as well the gold and silver trades . Those Tuesday trades can be accessed here: http://ashraflaidi.com/products/sub01/access/?a=580 Non subscribers can get a 1-week free trial here: http://ashraflaidi.com/products/sub01/

Merkel to meet Monti in more EU meetings as Fitch warns on Italy, Sarkozy to meet Lagarde, Greek PSI, UK trade balance set to rise in November. Commodity currencies rally across the board, led by the Kiwi, Norwegian Krone and Canadian dollar. See Ashraf's latest Premium Intermarket Insights arguing for CAD crosses.

Last nights meeting of IMF chief Lagarde and German Chancellor Merkel saw them discuss efforts to solve European debt crisis, situation in Greece and the Troika mission to Athens with respect to PSI. Later today Chancellor Merkel will meet Italian PM Mario Monti, in the wake if Fitchs comments yesterday that the fate of the euro will be decided at the gates of Rome, as it warned that the country faced the prospect of another downgrade by the end of the month.

Although Fitch suggested it may keep France triple A rating for now, Standard and Poors is still expected to follow up on its threat to remove its own France triple A rating as it did for USs last year.

President Sarkozy then takes his turn meeting IMF chief Lagarde as the two reacquaint themselves with the fiscal compact under discussion as well as growth and the proposal for the financial transaction tax.

The talks on the Greek PSI look set to rumble on with EU officials warning that haircuts could be imposed, however this would be problematic and would in all likelihood constitute a default with private bondholders holding out against haircuts in excess of 50%, as Greeces fiscal position continues to deteriorate.

UK November trade deficit rose to 8.6 from a revised 7.97 bln in October.

Germanys 2011 GDP growth came in at 3.0% from 3.7% in 2010.

Oil and gold hold firm, lifting NOK and CAD along with them even as risk appetite remains neutral to positive. Our positioning against AUDNZD has seen the pair lose over 300 pips and is slated for more losses.

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The euro was locked in a tight range as good news about France's credit rating competed with concerns from Greece. The commodity currencies rallied substantially while other currencies were relatively unchanged. The Asia-Pacific calendar is fairly quiet with Japanese leading indicators on the docket. Tuesday's Premium trades and charts are in progress.

Markets were unusually tame in US trading, especially once Europe closed. The EUR/USD range for the session was traced out early as the pair bounced from 1.2763 to 1.2815. Consolidation played out for the remainder of the day before the euro slipped to the lower bound on a late report out of Greece suggesting restructuring could be forced and that Greece will need a larger bailout than agreed in October.

The euros early strength came from Fitch, who said a French downgrade is unlikely in 2012.

Commodity currencies climbed on broadly positive risk sentiment. The S&P 500 gained 0.9% to 1292. EUR/AUD hit a fresh record low of 1.2361. The Canadian dollar got a modest boost from December housing starts, which were an annualized 200.2K compared to the 188.5K expected. Starts totaled 193K in the year and were accelerating into year end, showing that Canadas housing market is overheated but that the day of reckoning is still far on the horizon.

Italian benchmark 10-year yields ticked lower but remain above 7%.

Asia-Pacific Preview

Its a slower session in Asia on Wednesday. AUD benefitted from soft Chinese import data yesterday because it made a cut in the reserve ratio more likely. At 0500 GMT, the Japanese leading index is expected to improve to 92.9 from 90.0.

Tuesday's latest include 4 new charts (2 on USDCAD and 2 on silver) to map out the Gold/Silver strategy as well as the latest on the emerging bounce in risk appetite. Direct Access to today's Intermarket Insights found here: http://ashraflaidi.com/products/sub01/access/?a=580

We added 2 fresh trades on silver as well as 4 new charts to todays Premium Intermarket Insights (2 on USDCAD and 2 on silver) to map out the Gold/Silver strategy as well as the latest on the emerging bounce in risk appetite. Direct Access to today's Intermarket Insights fond here: http://ashraflaidi.com/products/sub01/access/?a=580

Greek auction results in a lower yield but bid to cover declined as well. Focus shifting to Ireland; ECB deposits at record highs again. Canadian housing starts surprise on the upside, prompting further bids in the oil-fuelled CAD. US IBD/TIPP economic optimism and wholesale inventories are both due at 10 am EST. Tuesdays Premium trades are up.

Euro recovery continues and EURUSD breaks above 1.28. The greenback is broadly weaker. European equity indices gained around 2% and the relative strength winners are NZD and AUD.

In light of yesterday's Merkel/Sarkozy comments that the second bailout fund would not be released until an agreement regarding restructuring is signed, the market cautiously awaited Greek debt auction results. Greece was able to sell EUR 1.625 bln (only EUR 1.25 bln expected) of 6 month bills with 4.90% average yield (previous 4.95%). Bid to cover declined to 2.8 from previous 2.93. Markets will now shift focus to German auction tomorrow, Spanish auction on Thursday and Italian auction on Friday.

The deposits at the ECB continue to break records every day. The ECB reported that deposits increased to EUR 481.94 bln yesterday, significantly higher compared to weekend's EUR 463.6 bln.

Traders' attention is shifting to Ireland again as rumors that debt restructuring or a second bailout may be needed started to appear. Irish spreads are widening and IMF inspectors returned to Ireland to make sure the bailout conditions are adhered to. The European commission has said that aid plan is working and there is no point in debating another.

WTI, gold and silver enjoyed a considerable rise over the past few sessions. WTI pulled back to 102.65 after touching 103, gold trades near session highs around 1630 and silver soared nearly to 30. It currently trades around 29.70.

Canadian housing starts rose to 200K in December from 185K, prompting further bullishness in CAD, which is backed by surging energy prices.

US data includes January IBD/TIPP economic optimism index that is seen higher at 45.3 from previous 42.8 and November wholesale inventories that are anticipated to rise by 0.5%, lower compared to previous 1.6%. Both releases are due at 10:00 am.

The market could also react when Chancellor Merkel meets IMF's head Christine Lagarde in Berlin at 2:00 pm.

Tuesdays latest Premium trades include USDCAD, CADJPY and US crude. These can be accessed in http://ashraflaidi.com/products/sub01/access/?a=580 NON-subscribers can click here to join: http://ashraflaidi.com/products/sub01/

Fitch said it sees no France downgrade in 2012, Merkel and Sarkozy focus on growth, urging quick resolution to Greece PSI plan, Ireland bailout plan to be scrutinised by Lenders troika, UK BRC retail sales numbers for December rebound sharply. China trade surplus rises in December. Monday's Premium trading are currently in progress.

In its European Credit Outlook presentation for 2012. Fitch said it does not expect France downgrade in 2012. This comes less than a month after Fitch lowered its France outlook to negative from stable, indicating slightly greater than 50% chance of a downgrade over a two-year horizon. Meanwhile, the credit agency did say there is a likelihood for a downgrade of Italy's credit rating once it concludes its review later this month. Regarding UK's rating, Fitch said QE has helped reduce gross debt borrowing.

Separately, France industrial output rose 0.5% in November following a 0.1% rise in October.

Yesterdays meeting between Merkel and Sarkozy saw the two leaders keen to see a resolution to the latest Greek bailout package with respect to the latest PSI involvement of 50%. This looks likely to run to the wire with the two leaders insistent that the next bailout tranche will not be paid until there is agreement.

In Ireland the troika of lenders of the ECB, IMF and EU is due to inspect the progress of the Irish government in meeting its latest bailout targets. Given that the latest Q3 GDP numbers saw a contraction of 1.9% there is a concern that new austerity measures may be called for.

The UKs latest British Retail Consortium retail sales numbers for December unexpectedly bounced back strongly, perhaps aided by a pre-Christmas bounce, as well as a lower base in 2010 data. BRC sales rose 2.2% in Dec following Novembers sharp 1.6% decline. Nonetheless, analysts remain preoccupied with statements from eminent retailers suggesting margins are getting thinner.

The latest Intermarket Insights on EURUSD, EURGBP, USDJPY, AUDUSD, US crude and gold & re currently in progress are found directly here: http://ashraflaidi.com/products/sub01/access/?a=579 NON-subscribers can click here to join: http://ashraflaidi.com/products/sub01/

China's latest trade balance data showed a rise in the trade surplus for December, rising slightly from $14.53bn in November to $16.8bn, well above expectations of a rise of $8.8bn. Exports remained steady at 13.8%, above expectations of a rise of 12.5%, though this might be explained by the early falling of Chinese New Year, while imports dropped sharply from 22.1% to 11.8%. This sharp drop reinforces concerns of a fall-off in demand internally and may prompt the PBOC to look at easing monetary policy again after last months bank reserve requirements cut.

Risk trades are marching higher on optimism about the US economy. The yen is lagging in early Asia-Pacific trading while AUD surges ahead. Upcoming data on Chinas trade balance is a risk. Ashrafs Monday trades including EURUSD, EURGBP, USDJPY, AUDUSD, US crude and gold & re currently in progress. For more detail on our latest Premium trades, including US crude, EURUSD & AUDUSD. please click here: http://ashraflaidi.com/products/sub01/access/?a=579 NON-subscribers can click here to join: http://ashraflaidi.com/products/sub01/

Trading was somewhat lackluster to start the week but the general tone was for improvements in risk assets. Sarkozy and Merkel met and said they want a deal to strength fiscal oversight in the Eurozone by March.

Weighing on optimism were growing problems with the Greek debt swap. The end-of-the month deadline is in danger and Greece may be asking for more than a 50% haircut. A failure in the negotiations would likely be the last straw that forces Greece out of the currency union. Various reports suggest that leaders are growing increasingly frustrated with deficit reduction progress.

The focus is also shifting back toward Ireland where there is talk about debt holders being forced to take a haircut. It is a situation that will certainly come back into focus in the coming months. Other debt auctions are another concern as the hoped-for drain of ECB deposits fails to materialize.

Early in Australian trading, data on building permits showed an 8.4% rebound in November after two months of declines. The gain exceeded the 6.0% expected and has helped to boost AUD and NZD in early trading.

Chinese Trade Balance

Chinese trade data will be released shortly. The trade balance isnt as important as the growth in imports and exports. The consensus is for a 22.1% import rise with exports growing 13.8%. The market often overlooks these numbers but they generally provide a strong hint about other figures, especially industrial output, which will be released Jan. 17.

Mondays latest Premium Intermarket Insights include US crude, gold, EURUSD & AUDUSD. Please click here: http://ashraflaidi.com/products/sub01/access/?a=579 NON-subscribers can click here to join: http://ashraflaidi.com/products/sub01/

The 2nd leg of our AUDNZD Premium short (standing for 3 weeks) finally hit it target after the overnight 100-pt decline, following disappointing November Aussie retail sales. November retail sales came in flat (0%), the weakest level since the -0.2% reached in June. Our first short in AUDNZD was issued in November, aiming for a final target at 1.3020. So where do go from here? AUDNZD has now fallen below its 55 DMA for the first time since October and is nearing its 200 DMA, which it last tested in November. For more detail on our latest Premium trades, including US crude, EURUSD & AUDUSD. please click here: http://ashraflaidi.com/products/sub01/access/?a=579 NON-subscribers can click here to join: http://ashraflaidi.com/products/sub01/

German trade surplus higher but industrial production declined; Eurozone Sentix investor confidence improved; ECB deposits reached a new high and German auction sees a negative yield for the first time ever. Market turns to Merkel/Sarkozy press conference, Canadian building permits and US consumer credit. Aussie is the weakest performer despite improved risk appetite after disappointing Aussie retail sales. Ashraf's Premium Intermarket Insights are due ahead of the US opening bell.

EURUSD fell to 1.2667 in early Asian trading but has recovered to 1.2785 during the London session. USD trades lower across the board, major European equities are lower by about 0.25% and the relative strength winner is NZD.

German data was mixed today as the trade surplus was better than expected and higher in November at EUR 15.1 bln from previous EUR 12.5 bln but the industrial production declined -0.6% in November after growing 0.8% previously. This fall pulled the annual figure to 3.6% from 4.2%.

Eurozone Sentix investor confidence improved slightly to -21.1 in January after falling to a two year low at -24 a month earlier. This marks the first improvement in five months.

In other news, the ECB said today that overnight deposits reached another high on Friday at EUR 463.6 bln, about EUR 8 bln more compared to last Thursday and Germany paid a negative yield at a bill auction today for the first time ever. It sold EUR 3.9 bln worth of 6 month bills with average yield -0.0122% from previous 0.001%. However, bid to cover fell considerably to 1.8 from 3.8.

Market volatility could increase when chancellor Merkel holds a joint press conference with president Sarkozy in Berlin today at 7:30 am ET and also at 10:30 am ET when Merkel speaks at a conference of the DBB trade union.

The NY session will bring Canadian building permits at 8:30 am ET that are expected to decline -3.1% in November after surging 11.9% in October. CAD traders should also pay attention at 10:30 am when the BOC releases its business outlook survey.

US data is limited to consumer credit due at 3:00 pm that is seen lower in November at USD 7 bln from previous USD 7.64 bln.

Market volatility could also increase at 12:40 pm when Atlanta's FED president Dennis Lockhart speaks about the US economy in Atlanta.

Merkel and Sarkozy to meet on fiscal affairs, German industrial production could improve, Aussie retail sales come in flat, Swiss retail sales bounce back.

EURUSD regains the 1.27 figure, after hitting fresh 16 month lows in overnight Asia, while EURJPY dipped to fresh 11-year lows. Markets remain unconvinced about a sustained policy response to the tribulations facing European politicians and their response to Europes debt crisis.

Todays meeting in Berlin between German Chancellor Angela Merkel and French President Nicolas Sarkozy sees 2012 start as 2011 ended with more meetings. The agenda is set to be dominated by the fiscal compact agreed upon last month, while Sarkozy threatens to unilaterally impose a Tobin tax on financial transactions as early as next month, even if Europe declines it. The idea for these transaction taxes is to be more efficiently set by as many markets as possible in order to optimize its revenue generation.

Investors will also be hoping that last weeks disappointing German retail sales and factory orders data will concentrate German minds ahead of the release of the latest November industrial production data, which is expected to show an improvement, with a rise of 4.1%, up from 0.8% in October.

Australian retail sales for November came in flat, below expectations of a rise of 0.3%, hitting a five month low and also raising expectations that another cut in rates is on the cards after Novembers reduction. This weak data should be tempered against a rise in new home sales prices, which increased by 6.8%, up from Octobers 5.5%.

Swiss retail sales rose 1.8% in the year ending in November, well over the expected 0.2% increase. This followed Octobers 0.2% decline. Swiss economic data has deteriorated in recent months due to the soaring franc, while deepening deflationary pressures further.

The euro fell to the lowest levels since September after the US added 200K jobs in the non-farm payrolls report. JPY and USD were the top performers while CAD and EUR lagged. The weekly CFTC speculative positioning report showed another record high in EUR shorts.

The headlines on non-farm payrolls were strong with 50K more jobs than expected and the unemployment rate falling to 8.5% but details were more cautious. A major sticking point was jobs in the shipping and delivery sector, which added nearly 50K to the headline. History has shown that these jobs were will disappear after the holidays.

The market reaction to the report was interesting with USD broadly gaining on the positive headlines. This is a theme that could persist for a number of weeks.

USD/JPY hit a session high of 77.33 after digesting the NFP details, the pair began to trend lower. The declines continued after dovish commentary from Dudley and Rosengren. Both suggested more Fed action, particularly in mortgages. USD/JPY closed the day near the lows, at 77.00.

The Canadian dollar was a laggard. Canadas jobs report was roughly in-line with estimates but the full-time/part-time jobs breakdown was sharply negative. USD/CAD marched higher throughout the day and closed at the highest levels since mid-December. The gains are particularly noteworthy given the climb in oil and other commodities during the week.

Markets turn to US earnings season this week, with the SP 500 closes above its 55 WMA for 1st time since July, just ahead of Q4 corporate results.

CFTC Commitments of Traders

Euro shorts hit a fresh record and yen longs more than doubled in Fridays CFTC data. The data (as of Jan. 3) showed that traders had no problem holding EUR shorts through year-end. The EUR net fell to -139K from -128K. Other currencies were up or flatish. JPY longs jumped to 56K from 22.5K something that makes intervention considerably more likely in the week ahead. AUD longs also jumped to 46.5K from 32.5K. GBP and CAD positioning turned slightly more negative at -23K and -32K, respectively.

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Ashraf previews 2012 on AlArabiya with Nadine Hani, touching on the latest US data improvement, BRICs outlook and a look at various asset classes. Non Arabic speakers can find an English synopsis in the "Description" tab of the video http://youtu.be/R9DxTa7N3ZY