Intraday Market Thoughts

Awaiting China CPI, French Downgrade Rumours Reappear

by Ashraf Laidi
Jan 12, 2012 0:30

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.

Ashraf's latest tactical trades on CHF peg and the current positioning in USDCAD and CADJPY are found here and here

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%.


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