New Year rally fades; range trading likely ahead of Friday’s NFP
The risk-on momentum that rang in the New Year dissipated on Wednesday despite the higher revision of the Eurozone Services PMI. In fact, EUR remains weighed down on the crosses with EURAUD falling to new record lows and EURJPY nearing 12-year lows as consolidates well below 100.00. Yesterday’s German bund auction was a success vs. November’s failed auction, but the focus today will be on the large supply of longer-dated bonds from France. Market jitters over France persist with the potential for S&P to follow through on its December 5 downgrade threat in the coming weeks. We reiterate our bearish view on EUR in the medium term as several obstacles for the Eurozone lie ahead. Greece has re-claimed the stage with PM Papademos saying that Greece faces default in March if a Troika deal does not come through. This echoes the Wall Street Journal the day before wherein an IMF official was quoted as saying “the debt sustainability analysis is not valid anymore” under the new economic forecasts; and that for Greece’s debt to be sustainable now “requires either a deeper haircut or additional loans from Europe”. While we expect EUR to remain vulnerable to further weakness, particularly on the crosses, markets should trade sideways heading into Friday’s NFP.
Read more …. Daily FX Str_Europe_05 Jan 2012