Risk currencies got off to a good start overnight as Asia returned from the holiday season (although Japan is still out). A strong non-manufacturing PMI out of China helped to keep sentiment supported, although the move higher in FX was already underway beforehand. This latest data print complements China’s manufacturing PMI released over the weekend which was also surprisingly firm. AUD, the chief beneficiary, briefly touched 1.0300 having spent the past three weeks trading below, and NZD is firmly back above 0.78 at the time of writing. EURUSD also reached higher ground trading in a range of 1.2922-1.2989. By contrast to the good news out of China, Eurozone growth remains sluggish. Yesterday’s pan-Eurozone PMI for December was confirmed at only 46.9, and with many member states either embarking on or accelerating their austerity programs, all the signs are that 2012 will be difficult year. Italian and Spanish sovereign debt auctions are not due until next week allowing attention to fall on US economic data in the interim. ISM manufacturing is due today – in contrast to Europe further output expansion is expected in the US (cons. 53.4, prev. 52.7). The political scene is particularly active this year globally, and the Iowa caucuses are also due to be held today, kicking off the US’ electoral race in earnest. The economy is expected to dominate popular concern, and the FOMC will also chime in with its own view as the minutes of the last meeting are released. We went long EURCHF overnight, taking advantage of recent weakness in the cross – we look for a move up to 1.25 over the coming weeks.
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UBS Investment Bank