Intraday Market Thoughts

Yen Storms Back, Draghi in Davos

by Adam Button
Jan 27, 2012 10:54

The yen erased all its recent losses on fixing demand and a minor short squeeze. Other majors are packed in a tight range with CAD as a minor laggard. Italy's auctions went well. Markets await The Draghi's speech and the alimportant advanced release of US Q4 GDP. 1st of our two Premium EURUSD longs hit all targets. We had 7 new Premium trades yesterday evening, with 4 charts on Gold, EUR, US crude and Eurozone spreads. Focus on EURUSD, ESH, CLF and gold.

Japanese news and data was relatively benign. CPI fell 0.1% y/y, as expected while December retail sales rose 2.5% compared to 2.0% expected. The BOJ minutes offered nothing particularly noteworthy.

PM Noda said he expects the BOJ to take bold action on the strong yen but those comments did nothing to stop the round of yen buying, which came without a clear reason. According to MNI FX Bullets, stop loss selling in USD/JPY and EUR/JPY was said to exacerbate heavy demand into the Tokyo fix.

Greek debt swap talks are set to resume with the sides said to be close to a deal. We will believe it when we see it.

Italy sold all of its EUR 11 bln target size in 6-month auctions, but with a slightly weaker bid-to-cover ratio at 1.35. The 10-year spread is 10 bps lower than the previous one at at +407bps.There was chatter that the ECB was buying Italian bonds ahead of the auction as part of its SMP program.

Spain Q4 unemployment rose to 22.9% from 21.5%.

Siwss KOF Economic Institute's leading index fell 0.18 points to -0.17 in January,vs an expected -0.1.

The Davos economic forum continues with Draghi slated to speak at 1315 GMT and many other market-movers as well.

EUR/USD and risk trades received a boost from positive US data on durable goods orders early in US trading. Overall orders climbed 3.0% compared to the 2.0% expected and November data was revised higher. Non-defense orders ex-air rose 2.9% versus the 1.0% consensus.

The figures put an upside bias into GDP figures due on Friday.

At the same time, economic news was salted with disappointments in jobless claims and new home sales. EUR/USD reached 1.3184 as European markets closed but drifted lower afterwards, finishing close to 1.3100.

The ECB and Greek creditors continue to debate about what to do with the 40B euros in Greek sovereign debt held by the ECB. Market participants believe the debt swap will go more smoothly, with less chance of a CDS trigger if the central bank accepts some losses.

Reuters reported that the ECB has ruled out taking any losses but that could set off a legal battle with other creditors. The ECB is split on how to proceed and may forgo its coupons in a bid to placate concerns.

Asia-Pacific Preview

Australia returns from holiday but China remains closed.

At 2330 GMT, Japan releases December CPI figures. The national figure is expected at -0.2% y/y after a -0.5% in November. Excluding food and energy, the CPI is expected to fall 1.1% y/y

RBNZ Governor Bollard signalled at the possibility of arate cut, while suggesting the RBNZ has pushed the timing of the next rate hike OCR following disruption to the post-earthquake construction. T

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