| Daily Forex Fundamentals | Written by Saxo Bank | Jan 15 09 08:01 GMT | | |
| Forex Market Update: Risk Aversion Continues To Boost USD And JPY As US Consumer Went On Strike In December. All Eyes On ECB And Trichet Press Conference Today Australia's employment report far worse than it appears on the surface. EURGBP - a follow up move lower in the cards? HEADLINES
THEMES TO WATCH - UPCOMING SESSION
Market Comments The US retail sales numbers for December were far worse than the consensus expectations, though perhaps not terribly surprising considering the ad hoc reports of sluggish activity and aggressive price slashing that were rolling in last month. Less autos, the retail numbers showed a seasonally adjusted -3.1% drop versus November data, which itself was revised down to -2.5% from -1.6%. The market action saw risk aversion in full bloom yesterday as this awful report conspired with the news of the Citigroup breakup and new worries at fresh needs for capital injection at Bank of America to punish equities through another layer of supports. The action overnight in Asia brought no relief. The risk aversion and lower commodity prices continue to support the greenback. Adding to the Euro's woes yesterday was an S&P cut to Greece's sovereign credit rating to A- from A. This move followed a spate of recent warnings from the ratings agency on Spain, Portugal and Ireland. All of this is a background drumbeat for one of the major themes we discussed before the turn of the year - that the EuroZone framework of individual nations, each with its own fiscal authority, within a single currency zone would be sorely tested in the New Year. This is now playing out in full force. Italy is likely to be the next major European country to come under review. As of yesterday, Greek 10-year bonds yielded almost 250 bps more than their German counterparts. The only thing in this world propping the EUR up at present is its deep liquidity. The fundamentals for the EuroZone are increasingly dire and it feels like something has to give soon. EURGBP may be one way to play for a weaker EUR besides EURUSD. See more on this in the charts section below. The ECB rate announcement and Trichet's press conference are on tap today. The baseline expectations are looking for a 50-bp cut to the 2.50% ECB rate to bring the rate to 2.00%. A small minority is looking for a hike beyond 50 basis points here, but considering Trichet amazing feats of gradualism, we think this is extremely unlikely. Another small minority is looking for only a 25 bp cut and until recently, a few were talking up the idea of no cut with the next ECB meeting only 3 weeks away. We strongly go with the consensus 50 bp cut and will look for Trichet's guidance at the press conference. The most recent round of rhetoric suggests that the ECB doesn't like the policy trajectory that the US Fed and the BOE have taken and that they don't want to cut rates 'too low'. Let's see if that rhetoric is renewed in any way today. There is absolutely nothing on the inflation front for Trichet and company to get all vigilant about at the present time. The German CPI data out today is looking for a 1.1% year-on-year inflation rate, which is edging down close the lowest levels for the last 10 years. It appears that deflation is, in fact, the greater threat in the near term. US headline CPI out this Friday is likely to turn negative for the first time in generations. The Australian employment report was actually far worse than it appeared at first blush. While the change in employment was negligible, the internals of the numbers showed a very large drop in full time employment (to the tune of almost -44k, which in population terms would be like US nonfarm dropping over 600k) vs. a surge in temporary employment. So this number is not to be taken as a sign of resilience in the Australian economy. The continued pressure on gold and other commodities besides the equity weakness are further reason to worry about the Aussie's fundamentals here. Chart: EURGBP EURGBP completed a well organized 5-wave sequence late last year to the spectacular 0.9800+ high and is now in a correction sequence. The rally we've seen this week may be a weak B-wave to be followed by a renewed C-wave to the downside. A trigger for that scenario could be a fall through the indicated rising trendline, currently coming in around 0.8925. The risk for bears, of course, is that the B-wave extends further first. The short term will be determined, of course, by today's ECB rate announcement and subsequent press conference. The pound is beginning to look resurgent against many of its G7 counterparts.
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Thursday, January 15, 2009
All Eyes On ECB And Trichet Press Conference Today
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