Thursday 11th December: European Open Briefing

Global Markets:

• Asian stock markets: Nikkei down 0.90 %, Shanghai Composite lost 0.60 %, Hang Seng fell 1.10 %, ASX declined 0.50 %
  Commodities: Gold at $1227 (-0.15 %), Silver at $17.13 (-0.30 %), Crude Oil at $61.40 (+0.80 %)
• Rates: US 10 year yield at 2.16, UK 10 year yield at 1.912, German 10 year yield at 0.68

News & Data:

• Reserve Bank of New Zealand leaves rates unchanged at 3.50 %
• RBNZ: Risks to growth include dairy prices
• RBNZ: Sees annual CPI at 1.5 % end-2015; 2.0 % at end-2016
• RBNZ: Further policy moves dependent on data
• RBNZ: Rates to rise gradually to around neutral level
• RBNZ: Inflation expected to approach 2 % mid-point in latter part of forecast period
• RBNZ: NZD level still a headwind to exporters
• RBNZ: Exchange rate risk still high
• Australia Employment Change 42.7k, Expected: 12.4k, Previous: 13.7k
• Australia Unemployment Rate 6.3 %, Expected: 6.3 %, Previous: 6.2 %
• Australia Participation Rate 64.7 %, Expected: 64.6 %, Previous: 64.6 %
• Japan Core Machinery Orders m/m -6.4 %, Expected: -1.9 %, Previous: 2.9 %
• RBNZ Governor Wheeler: Message is clear that RBNZ on hold for long time, lower oil price increases disposable incomes
• Wheeler: Need for rate tightening has been pushed out, productivity growth may be starting to improve

Markets Update:

USD/JPY declined to 117.42 in the early Asian session, but a bounce in the Nikkei pushed the pair to a session high of 118.30. Immediate chart support seen at 117.85 and then 117.40. Intraday stops reported through 117.75. To the topside, resistance noted at 118.70 and 119.45. In USD/CAD, selling from macro names pushed the pair to a low of 1.1447. The Loonie got also a bit of support by the bounce in Oil overnight. Asia mentioned that decent offers start north of 1.15 and see large stops resting above the 1.1550 level. Bids reported into 1.1420, with key chart support noted at 1.1395 and then 1.1340.

AUD/USD rallied to a high of 0.8374 on a better than expected employment change number, driven by fast money buying. However, as traders took a better look at the figures, momentum quickly waned and the Aussie drifted back to 0.8325. While the employment change was good, the jobless rate increased to 6.3 % from 6.2 %, full-time jobs were only up 1.8k and last month’s employment change was revised lower to 13.7k from 24.1k previously. Key intraday support at 0.8265, while 0.8370 remains the pivotal resistance level in the near-term.

Meanwhile, the NZD/USD rallied overnight. The RBNZ kept rates unchanged, as expected, but surprised market by a less dovish than expected tone in their statment. The key phrase from the statement was: “Some further increase in the OCR is expected to be required at a later stage.” While the RBNZ downgraded their interest rate forecast, the market was already pricing in 60bps lower, so their shift was market neutral. They repeated their usual warning about the high NZD level, but the market is ignoring those, as usual. While the NZD/USD rally could be limited, it is likely the NZD will remain bid in the crosses, especially against the Aussie Dollar.

NZD/USD buying was led by leveraged names and macro funds. Bids expected into 0.7760. Another round of heavy AUD/NZD selling went through and the pair reached 1.0620, which was the July 2014 low. It bounced from there, but decent resistance seen ahead of 1.07 and then 1.0750.

Upcoming Events:

• 07:00 GMT – German CPI (0.0 % m/m, 0.6 % y/y)
• 07:45 GMT – French CPI (0.2 % m/m, 0.5 % y/y)
• 08:30 GMT – Swiss National Bank Rate Decision
• 08:30 GMT – SNB Chairman Jordan speaks
• 09:00 GMT – ECB Monthly Report
• 13:00 GMT – Bank of Canada Governor Poloz speaks
• 13:30 GMT – US Initial Jobless Claims (299k)
• 13:30 GMT – US Retail Sales (0.4 % m/m)
• 13:30 GMT – US Core Retail Sales (0.1 % m/m)
• 15:00 GMT – US Business Inventories (0.2 % m/m)

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