Wednesday 24th December: European Open Briefing

Global Markets:

  • Asian stock markets: Nikkei up 1.15 %, Shanghai Composite down -2.10 %, Hang Seng up 0.25 %, ASX up 0.25 %
  • Commodities: Gold at $1178 (+0.04 %), Silver at $15.78 (+0.10 %), Crude Oil at $56.65 (-0.81 %)  Rates: US 10 year yield at 2.248, UK 10 year yield at 1.847, German 10 year yield at 0.593

News & Data:

  • Reminder: we’re in Holiday mode across Europe and North America today and there will be early closes in some markets.
  • Japan Cabinet resigns, new Cabinet to be announced later today, few changes but new defense minister could rile China – Reuters.
  • FinMin Aso – Third arrow won’t work without help of private sector, companies must up wages, government to show commitment to fiscal reform, hard to tell what desirable JPY level is, best left to markets – Reuters.
  • Japan Post to go public next September, Y14 trln net assets, 10% of Post Bank and Post Insurance to be released in IPO, could net Y700 bln – Nikkei.
  • Sony explores sale of music publishing unit, valued at $1.5-2 bln – Nikkei.
  • Weak commodity prices boon for India, hurt Malaysia, Australia – Reuters.
  • Australia cuts iron ore price forecasts 33% as supply mounts – Reuters.

Markets Overview:

USD/JPY and JPY crosses traded on the soggy side. It was debatable whether USD/JPY or EUR/JPY led the complex a bit lower. USD/JPY was as high as 120.75 early but eased off on Japanese exporter sales into the Tokyo fix (despite value today interest from importers) and profit-taking by specs. A low of 120.27 was seen before the market bounced. The pair was bracketed by large option expirations at 120.00 ($4.562 bln) and 121.00 (1.856 bln). EUR/JPY fell back from 147.02 to 146.45, never having rallied a la USD/JPY yesterday with EUR generally on the back-foot. Contrasting central bank expectations continue to give EUR a more bear outlook. Trading in both USD/JPY and EUR/JPY was thin and not all that surprising given upcoming Christmas and Boxing Day holidays. GBP/JPY fell back from 187.36 to 186.54 but could still bounce with the downside limited to the 186-handle as of late. AUD/JPY and NZD/JPY losses were limited too, down from 97.94 to 97.49 and from 93.17 to 92.81, respectively. High-beta currencies look to be in better demand from Japanese players, especially on dips.

The EUR/USD opened the Asian session at 1.2173 after selling off in the US market when better than expected US GDP data sent US yields sharply higher. The EUR/USD tried to move higher in early Asian when there was profit taking selling in the USD/JPY. The EUR/USD traded up to 1.2188 before EUR/JPY selling capped and sent the EUR/USD back to the opening level around 1.2170/75 heading in to the afternoon session. The EUR/USD traded as low as 1.4645 after closing the US session at 1.4700. The EUR/USD is trending lower into year-end and is doing so in a convincing manner. Sentiment is decidedly bearish, as evidence continues to build that the Fed will commence tightening around mid-2015 while the market believes the ECB will announce QE at their Jan 22 meeting. There is option related buying at various levels either side of 1.2100, but there is no technical support of note this side of 1.2050.

GBP/USD Whilst figures overnight showed the UK economy grew by 0.7 percent during the third quarter, its strongest performance in four years the make-up and structure of that growth still remains a concern for policy makers. Given signs of weak expenditure mixed with poor levels of investment from neighbouring Europe net trade figures and a widening current account deficit have seen the Great British Pound weaken over the past 24 hours. Having traded as low as 1.5484 when valued against its USCounterpart the Sterling is notably lower against the Greenback whilst steady against the Aussie and the Kiwi. December range low 1.5375, 76.4% of 3013/2014 rise is next significant support and London 1.5486/1.5606 range is initial support/resistance.

AUD/USD opened on Wednesday at 0.8103 and traded a modest 0.8097-0.8124 range in Asia; last at 0.8122 Today was one of light profit taking after pair failed to hold levels below 81 cents reached overnight. The US Dollar however remains in full control against nearly all major currencies except the CAD. Revised US GDP data overnight was just ‘icing on the cake’ of what has proven to a strong run for the US Dollar since NY returned from holidays at the beginning of September. In that period AUD/USD has fallen 14% in just 77 days. The US came back from the summer holidays in full-on buy US Dollar mode. AUD/USD had a period of consolidation in the 86-88 pocket but since mid November AUD/USD has been a one trick pony to the downside. There is nothing on the horizon to break the strong US Dollar trend which if anything is picking up steam. AUD/USD is destined for levels below 80 cents once key support at 0.8066 (May 2010 low) is broken. Profit taking may kick in below 80 cents but that will only slow AUD/USD’s descent. AUD is also down against the field highlighting domestic/China concerns as a leading factor.

NZD/USD ended in New York at 0.7710, its lowest close in a week as the USD stays in ascendancy. Asia thus far has held the rate within a non-descript 0.7709/0.7733 range. Light book squaring to the topside was the only real feature as traders sought to take advantage of the prevailing Welly/Sydney liquidity prior to early departures. Interest otherwise remained scant. Heading into the Asian mid-session the NZD/USD is last quoted 0.7723/27. From here, 23 Dec low at 0.7694 presents as sup once through the figure while the 0.7736 19 Dec daily low is close overhead resistance followed by 0.7753 10-DMA.

Upcoming Events (all times GMT):

08:00 CH Dec KoF sentiment indicator, 99.4 eyed; last 98.7.

12:00 US w/e mortgage market index; last 360.0.

13:30 US w/e initial jobless claims, 290k eyed; last 289k.

15:30 EIA weekly energy report.

And have yourselves a very Merry Christmas!

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