Monday 22nd December: European Open Briefing

Global Markets:

  • Asian stock markets: Nikkei down 0.04 %, Shanghai Composite up 1.13 %, Hang Seng up 1.63 %, ASX up 1.94 %
  • Commodities: Gold at $1198 (+0.15 %), Silver at $16.05 (+0.11 %), Crude Oil at $57.91 (+1.36 %)  Rates: US 10 year yield at 2.15, UK 10 year yield at 1.85, German 10 year yield at 0.59

News & Data:

  • Japan Idemitsu Kosan in final stages of talks to acquire Showa Shell, Y500 bln deal, Royal Dutch Shell largest shareholder (35%) – Nikkei.
  • China PBOC ViceGov Yi Gang – Yuan to remain a stable currency – MNI.
  • Philly Fed Plosser – Fed should have signaled rate hikes could come sooner, policy should be determined by data – Reuters.
  • Richmond Fed Lacker – Time will come to lift rates in ’15, drop in oil prices boosting consumer spending – Reuters.
  • BoE MPC Miles – Inlfation plunges doesn’t pose deflation risk, policy unlikely to be changed – Sunday Telegraph.
  • ECB VP Constancio – Eyes negative inflation in months ahead after oil price fall, zero inflation target risks deflation, economy would be vulnerable, won’t rule out QE – WirtschaftsWoche.
  • ECB Coene – Supports government bond purchases – La Libre Belgique.
  • Greek PM Samaras offers ’15 election once bailout talk complete, offers to bring pro-Europe independents into government – Reuters.
  • Russia growls across the border as Lithuania readies for EUR – Reuters.
  • Saudi Arabia won’t cut oil output even if non-OPEC nations do – Reuters.
  • NZ Q4 WMM consumer confidence index 114.8, lowest in two years, Q3 116.7.

CFTC Positioning Data:

  • Pullback in some currencies and positions should clean slate a bit
  • Net spec JPY short 86,927 vs 104,136, lowest since mid-November
  • EUR short 126,655 vs 136,912, smallest since August
  • GBP short trimmed, CHF short nearly gone
  • AUD short 34,253 vs 45,013, lowest since late Oct-early Nov

Markets Overview:

USD giving up some gains, Euro complex bid, Risk appetite back in the pipes.

USD/JPY and JPY crosses did little in Asia with the Tokyo holiday tomorrow and upcoming Christmas holidays later this week sidelining many. A number of Tokyo players already look to have finished up for the year. Most Tokyo businesses officially close for the year Friday and don’t return till January 5. USD/JPY traded mostly around massive option expirations at 119.50 ($2.552 bln to expire mostly at the New York cut). Despite the up bias, a broadly soggy USD provided headwind. Some demand was noted at today’s Tokyo fix. EUR/JPY was better bid, up modestly from 145.98 to 146.20 with EUR/USD bid. GBP/JPY seesawed between 186.44-87 and looks to maybe break higher, in contrast to EUR/JPY where sentiment is more bearish. AUD/JPY was buoyant between 97.07-51 with some interest returning to high-beta currencies. Most Tokyo players believe the New Year will entail renewed JPY weakness and higher stocks.

EUR/USD opened in Asia at 1.2226, then it eased to 1.2220 early. Very good bids emerged at this level, some option-related, and ensuing short-covering saw a drift up to 1.2247. EUR/USD looks to remain under pressure in the short-run with the market is ever more convinced of ECB sovereign bond buying or QE at their January 22 meeting. The market also looks to be pricing in the start of the Fed tightening cycle in June. Some see late April as a possibility if US data surprises to the upside.

GBP/USD was better bid, up modestly from 1.5616 to 1.5639 on short-covering flows a la EUR/USD. EUR/GBP traded a tight 0.7818-29 range, just above the 0.7813 low Friday. Stops are eyed sub-0.7790 and large sub-0.7750.

USD/CHF fell back modestly from 0.9845 to 0.9828 but remains in range to break above its recent trend high at 0.9848. Stops are eyed above 0.9850. EUR/CHF did nothing, holding between 1.2028-35.

AUD/USD opened in Asia at 0.8151, marked higher from a New York close Friday of 0.8141 in thin conditions. It traded higher still to 0.8170 as specs hunted for stops from weak shorts. It quickly retreated to settle between 0.8140-50 before further probes to 0.8132. It has since bounced on decent rallies in regional stocks. AUD/NZD provided added support with the cross up from 1.0481 to 1.0550 before easing back. Calls by some banks for 1.13 in the cross looked to be behind the cross rally. Over the holiday-andhump carry trades also helped AUD higher all around. AUD/USD sees good option barrier support at 0.8100. Stops look to be large below however and trail down to 0.7970.

NZD/USD opened in Wellington at 0.7747, up from 0.7729 at the New York close Friday. Weaker consumer confidence data and calls by some banks to buy AUD/NZD subsequently helped shift the focus to the downside. From 0.7769, it fell to 0.7715 before bids re-emerged. A decent bounce ensued as regional stock markets rallied, bolstering risk appetites in general. Resistance is eyed from around 0.7780 and to 0.7800. Tomorrow’s trade report is expected to show a NZ$500 mln deficit and NZ$750 mln for the year to November.

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