Strong employment report fails to turn poor market sentiment
Friday’s strong US employment report failed to drive risk higher as US equities closed in the red and the USD remained on a firm footing; this week has begun on a similarly soft tone, with early morning stops sending EURUSD and EURJPY to fresh lows for this move. Over the weekend, Chinese money growth and new loans posted solid increases, but a report in the Nikkei that China was ready to settle for just 7% growth this year weighed on sentiment. Also weighing were comments from the Czech FinMin suggesting that Greece would have to leave the EUR if Europe was not ready to provide ‘massive funding.’ Meanwhile, Der Spiegel said that the IMF is losing confidence that Greece will be able to pay off its mountain of debt’ – although this was already hinted at last week by the IMF’s Chief Economist Blanchard. While the outlook for EUR remains bleak, we note that positioning, as proxied by IMM net spec holdings, is now reaching extreme levels. Short EUR positions are at all-time highs; while current JPY longs have been surpassed only twice in the last five years. Clearly the risks to going short EUR are building, even if it remains far from clear what might provide the EUR-positive trigger.
Read more …Daily FX Str_Europe_09 Jan 2012