Tuesday 23rd December: European Open Briefing

Global Markets:

  • Asian stock markets: Nikkei up 0.08 %, Shanghai Composite down -0.87 %, Hang Seng up 0.12 %, ASX down -1.12 %
  • Commodities: Gold at $1179 (-0.03 %), Silver at $15.72 (+0.19 %), Crude Oil at $55.91 (+1.17%)
  • Rates: US 10 year yield at 2.157, UK 10 year yield at 1.83, German 10 year yield at 0.601

News & Data:

  • PBOC Sets Yuan Mid-Point at 6.1230 / Dlr Vs Last Close 6.2216
  • Philippines Says October Imports +7.5% from Year Ago
  • Philippines Says October Trade Balance -56mln Dollars
  • Moody’s Lowers Ceilings on Non-Sovereign Ratings in Russia
  • Moody’s – Lowered Russia’s Foreign Currency Bond Ceiling to Baa2 from A3; Foreign Currency Deposit Ceiling to BA1 from BAA2
  • Moody’s – Decisions Reflect Worsening in Operating Environment Facing All Non-Sovereign Issuers in Russia
  • Moody’s – Russia’s Reserves Remain Very Substantial, but Have Fallen Over Past Year and Moody’s Expects this Negative Trajectory to Continue In 2015
  • NZ Nov Month Trade Balance NNZD-213mln (Reuters Poll Deficit NZD500mln)
  • NZ Nov Annual Trade Balance NZD-0.45bln (Reuters Poll Deficit NZD0.75bln)
  • NZ November Month Imports NZD4.24bln (Reuters Poll NZD4.53bln)
  • NZ November Month Exports NZD4.02bln (Reuters Poll NZD3.95bln)

Markets Overview:

Carbon copy of yesterday’s Asia session: demand for Jpy crosses, gold and oil futures.

USD/JPY opened the Asian session at 120.05 after steadily gaining ground through the US session due to elevate risk appetite and falling volatility taking away the JPY’s appeal as a safehaven. The Tokyo holiday ensured the Asian session would be an extremely quiet one and the USD/JPY could only manage a 120.01/19 range through the morning session and it was trading around 120.10 heading into the afternoon session. There was talk of Japanese exporter sell orders between 120.20/40 that helped to cap the price action. The big selloff to 115.56 last week was due to the falling oil price causing a spike in risk aversion. Risk assets and investor sentiment have appeared to decouple for the price movements in the oil price and this has restored confidence in JPY selling. The USD/JPY appears on track to test 121.86 at some stage while former resistance at 119.45 holds on pullbacks.

EUR/USD opened the Asian session at 1.2231 after drifting lower through the US session, as the USD/JPY led the USD broadly higher in quiet trading. The Asian session was extremely sleepy due to the Tokyo holiday today, Christmas holiday Thursday and year-end next week. EUR/USD traded in a 1.2220/33 range and was trading where it opened (1.2231). Sentiment towards EUR/USD remains bearish and it will likely remain under pressure while the market remains convinced the ECB will be announcing QE at their Jan 22 meeting. Sellers are lined up ahead of

1.2300 while option related buying is eyed ahead of 1.2200.

GBP/USD was less interesting and traded a 1.5572-92 range in Asia; last at 1.5590.

USD/CHF also provided little interest and traded a 0.9835-46 range in Asia; last at 0.9836.

AUD/USD opened on Tuesday at 0.8132 and traded a modest 0.8117-35 range in Asia; last at 0.8131. After easily giving up its gains to 0.8170 overnight, AUD/USD traded in Asia to within 10 pips of the trend low – 0.8107. AUD/USD’s inability to hold onto any gains keeps shorts happy with a test of 80 cents before the year is out still on the cards. Stops (mostly option related) reportedly rest below the barrier at 0.8100 and all the way down to 0.7970. Market is now in full wind down mode with most trading desks manned by skeleton staff ahead of the holiday period. Liquidity could become an issue but for many players they are content to sit on the sidelines until next week and for the others until the start of 2015. AUD/USD set remain friendless at least for the first part of 2015 with a break of 80 cents now seen as given in such the same manner in which a break of EUR/USD 1.20 is expected. While the EZ is expected to move to full blown QE and undermine the EUR – AUD is feeling the full weight of the commodity sell-off and the possibility of a further two rate cuts in 2015.

NZD/USD ended in New York at 0.7729. Thus far in Asia it has traded an uneventful, tight 0.7720/0.7743 range and is last quoted 0.7740/42. Just ahead of the official close, news of a slightly lower than f/c Nov trade deficit: -NZD213mil vs –NZD500mil for –NZD0.45bln y/y agst NZD0.75bln, left the rate modestly higher. Having effectively steered focus away from an imminent test of 0.7700 cents, traders moved to buy back shorts underpinning a recovery which eventually extended above 0.7740. For the moment, NZD appears to be in a broad 0.7700/0.7800 holding pattern. Heading into the Asian afternoon, 0.7764 10-DMA looms as overhead res, 0.7700 5 Dec low stays as support.

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