EU Summit passes without reaction, focus remains on prospects for Greek PSI+ agreement
Yesterday’s EU Summit – the 16th of the last two years – did little to boost confidence. The focus was on agreeing the terms of the new European fiscal pact – and in this 25 of 27 EU nations have signed up to relatively tough budget restrictions backed by the threat of fines, to be imposed by the European Court of Justice. But the signing will not take place until March; and France will not attempt to ratify it until after the presidential election. More importantly, the summit left Greece off the agenda, adding to the sense of disappointment. Comments from Greek PM Papademos after a post-Summit meeting raised hopes of agreement by the end of the week; while risk has rebounded, we remain cautious: repeated promises of imminent agreement over the past two weeks have delivered nothing as yet. Resistance at the 1.3244 level remains the likely cap for EURUSD unless and until agreement is reached; meanwhile, the longer this drags out, the more likely EUR will suffer as contagion spreads to Portugal, where 10yr yields rose 172bps yesterday.
NOK retail sales may boost NOKSEK; US consumer confidence to improve yet again
NOK has rallied more than 5% against USD since mid-January and almost 2% against SEK in the last week. NOK strength may be further supported by today’s retail sales numbers, where we expect a slightly stronger number than consensus on a m/m basis. We remain bullish on NOK especially against SEK and see a rally back to the recent high of 1.1800. SEK
remains vulnerable in an environment where global growth concerns linger. Meanwhile, US Consumer Confidence is expected to post a fourth consecutive increase rising to 69.0 in January. The main drivers of the index are likely the better than expected news on employment as well as the generally positive economic data. Also, Chicago PMI is expected to improve for the month of January. The improvement in the regional manufacturing surveys should imply a generally solid ISM (released on Wednesday). With the Fed pinning the front end of the Treasury curve (up to 5yrs) to all time lows, positive data out of the US is unlikely to do much to the yield curve, but it may be viewed by the markets as a spur to risk as it confirms the general picture of modest US growth – and with that the positive implications for global growth.
CAD to play catch up with AUD
We expect Canadian m/m GDP for November to come in flat, lower than market expectations of 0.2%m/m. While this may weigh negatively on CAD, we would expect the impact will be short-lived. We continue to see a risk of a correction lower in AUDCAD as suggested by the divergence in IMM positioning. CAD has significantly lagged other commodity currencies and a weaker reading for tomorrow’s China PMI could mean that AUDCAD comes under pressure.
JPY back in intervention territory – but no finger on the trigger just yet
USDJPY has continued its slide, touching three-month lows last seen when the authorities intervened at the end of October. Finance Minister Azumi warned this morning of action against volatile and/or speculative moves, but as yet there is little sense that intervention might be imminent. Criticism from G7 partners and the general USD weakness since last week’s FOMC may dissuade the MOF from action even on a slide towards the previous intervention level around 75.60. However if a change in risk sentiment were to see USDJPY in the low 75’s even as the USD headed broadly stronger, then the risk of intervention would appear much greater.
BNP Paribas