Wednesday 10th December: European Open Briefing

Global Markets:

  • Asian stock markets: Nikkei down 2.50 %, Shanghai Composite gained 1.20 %, Hang Seng rose 0.40 %, ASX down 0.50 %
  • Commodities: Gold at $1235 (-0.30 %), Silver at $17.14 (+0.05 %), Crude Oil at $63.20 (-1.00 %)
  • Rates: US 10 year yield at 2.216, UK 10 year yield at 1.893, German 10 year yield at 0.687

News & Data:

  • Australia Westpac Consumer Sentiment -5.7 %, Previous: 1.9 %
  • Australia Home Loans 0.3 %, Expected: 0.2 %, Previous: -0.4 %
  • China CPI m/m -0.2 %, Expected: 0.1 %, Previous: 0.0 %
  • China CPI y/y 1.4 %, Expected: 1.6 %, Previous: 1.6 %
  • China PPI y/y -2.7 %, Expected: -2.4 %, Previous: -2.2 %

Markets Update:

Liquidity is getting worse towards year-end and this is now becoming visible. Many leveraged funds want to book some profits ahead of the holidays and the position liquidation was especially large in USD/JPY in the past few sessions. The pair fell to a low of 117.95 in yesterday’s NY session, which is a 210 pips decline intraday and almost a 400 pips drop since the Sunday open. Buying of semi-official names (GPIF) lifted USD/JPY off its lows and the pair eventually recovered towards 119.90. However, momentum waned quickly as Tokyo got a bit nervous as well. Local names and offshore leveraged funds were the main sellers overnight and the pair drifted back to 118.70. It is likely we will see more of this choppy price action in the coming days and fading the extremes seems the best strategy in the near-term. Immediate support is seen at 117.95 (yesterday’s low) and we have another key support level at 117.82 (December 1st low). To the topside, resistance noted at 120.10 and then 120.70.

EUR/USD reached 1.2445 yesterday, but fell back beneath 1.24 on dovish comments from ECB officials. The pair consolidated between 1.2360 and 1.2395 in Asia and with little econ data & events scheduled for today, the focus will likely remain on the USD/JPY and how equities/oil will be performing. Should risk aversion increase, the Euro has been the currency that usually benefits from it, at least in the past few months. Short-term techs are mixed; while we have seen a decent rally since the bounce off 1.2245, the daily close sub-1.24 wasn’t a good sign for bulls. The 1.2440/50 resistance area is now key and we’ll need to see a clear break above to pave the way for a further squeeze towards the 1.2570/1.26 area. To the downside, immediate support noted at 1.2340 with 1.2290/1.23 the pivotal support area in the near-term.

Upcoming Events:

  • 07:45 GMT – French Industrial Production (0.2 % m/m)
  • 09:30 GMT – UK Trade Balance (-£9.53bln)
  • 20:00 GMT – Reserve Bank of New Zealand Interest Rate Decision (3.50 %)
  • 20:00 GMT – RBNZ Monetary Policy Statement
  • 20:00 GMT – RBNZ Governor Wheeler speaks

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