Mid-Day Report: Euro Volatile But Lacks Direction
Euro spiked higher earlier today on report that China is going to create a $300b investment vehicle for managing investment funds in US and Europe. However, markets are rather unimpressed by the fiscal compact agreed by 23 of EU nations, not all 27 nations. And in such case, the new rules will only operate as intergovernmental agreements and couldn’t be enforced through change of treaty. The rest of the nations, except UK, would consult their parliaments before confirming whether to join the agreement. But UK has made it clear that they won’t join as there was “fundamental disagreement”. And still, every single country will need to take the issue back to parliament s for approval. Under the pact, the Eurozone member states, plus six other EU states, agreed to run minimal budget deficits and allow European Court of Justice the right to strike down national law that don’t enforce the discipline.
Meanwhile, EU President Van Rompuy announced that the approach to private sector involvement is “now officially over”. Germany backed down from insisting on investors sharing the costs of bailout. EU have made a “major change in our doctrine: from now on we will strictly adhere to the IMF principles and doctrines”. And leaders now agreed to accelerate the set up of the ESM, the permanent bailout fund, to July 2012, a year ahead. However there was no immediate agreement on boosting the bailout fund and would put it off till March to decide whether to firepower the fund to above EUR 500b.
Earlier today, Rompuy said some EU countries would provide up to EUR 200b to IMF to shore up troubled nations. It’s believed that the fund would included EUR 150b from bilateral loans from ECB to IMF, with another EUR 50b from non eurozone EU countries. Half of the fund is expected to go into IMF fund reserved for lending to Eurozone. The remaining half would go to IMF’s General Resources Account. It’s expected that the additional contribution by EU countries would open the door from BRIC countries.
On the data front, U of Michigan consumer sentiment improved much more than expected to 67.7in December. US trade deficit was at -43.5b in November. Canadian trade turned deficit at CAD -0.9b in November. UK trade deficit narrowed to GBP -7.6b in October. UK PPI input rose 0.1% mom 13.4% in November while PPI output rose 0.2% mom, 5.4% yoy. German CPI was finalized at 0.0% mom, 2.4% yoy in November while trade surplus narrowed to EUR 12.6b. Japan BSI large manufacturing index dropped -6.1% qoq in Q4. Q3 GDP was revised down to 1.4 qoq. China CPI moderated more than expected to 4.2% yoy in November while PPI dropped to 2.7% yoy. It’s believed that the lower inflation reading should give China more leeway to loosen credit.
Daily Pivots: (S1) 1.3266; (P) 1.3363 (R1) 1.3437; More.
EUR/USD is still bounded in the choppy sideway pattern from 1.3538 and intraday bias remains neutral. Another decline is still in favor with 1.3614 resistance intact. Below 1.3259 will indicate that choppy recovery from 1.3212 is finished and recent fall from 1.4246 is ready to resume. In such case, intraday bias will be turned back to the downside and send EUR/USD through 1.3212 to retest 1.3145 first. A break above 1.3538 will turn focus back to 1.3614 instead. Break there will indicate fall from 1.4246 is finished and bring stronger rally towards this resistance.
In the bigger picture, no change in the view that price actions from 1.6039 high are consolidation pattern and is still in progress. Consider that EUR/USD is trading below falling 55 days EMA as well as 55 weeks EMA. Daily and Weekly MACD are both negative. Favor is on the case that decline from 1.4939 represents another falling leg inside such consolidation pattern. Break of 1.3145 support will affirm this case and should target 1.1875 and below. Nonetheless, in that case, we’d expect strong support above 1.1639 key level to contain downside. On the upside, above 1.4246 will indicate that fall from 1.4939 is finished will extend the rally from 1.1875. But then, strong resistance should be seen below 1.6039 to limit upside.
23:50 JPY BSI Large Manufacturing Q/Q Q4 -6.1 11.4 10.3 23:50 JPY GDP Q/Q Q3 F 1.40% 1.30% 1.50% 23:50 JPY GDP Deflator Y/Y Q3 F -2.20% -1.90% -1.90% 02:00 CNY CPI Y/Y Nov 4.20% 4.50% 5.50% 02:00 CNY PPI Y/Y Nov 2.70% 3.30% 5.00% 07:00 EUR German CPI M/M Nob F 0.00% 0.00% 0.00% 07:00 EUR German CPI Y/Y Nov F 2.40% 2.40% 2.40% 07:00 EUR German Trade Balance (EUR) Oct 12.6B 14.7B 15.3B 09:30 GBP PPI Input M/M Nov 0.10% -0.10% -0.80% 09:30 GBP PPI Input Y/Y Nov 13.40% 12.90% 14.10% 14.30% 09:30 GBP PPI Output M/M Nov 0.20% 0.00% 0.00% 09:30 GBP PPI Output Y/Y Nov 5.40% 5.30% 5.70% 09:30 GBP Visible Trade Balance (GBP) Oct -7.6B -9.5B -9.8B -10.2B 13:30 CAD Labor Productivity Q/Q Q3 0.4$ -0.20% -0.90% 13:30 CAD International Merchandise Trade (CAD) Nov -0.9B 0.60B 1.25B 13:30 USD Trade Balance Nov -43.5B -43.5B -43.1B 14:55 USD U. of Michigan Confidence Dec P 67.7 65.9 64.1
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