Market Drivers Jan. 10, 2013
Chinese data beats sending Aussie through 1.0550
Strong Spanish auction lifts EUR through 3100
Nikkei 0.70% Europe 0.07%
Oil $93.79/bbl
Gold $1661/oz.

Europe and Asia:
EUR ECB Rate Decision
EUR ECB Deposit Facility Rate
GBP BOE Rate Decision
GBP BOE Asset Purchase Target

North America:
USD Initial Jobless Claims 8:30

Strong Spanish and Italian auctions along with much better than expected trade data out China helped fuel a rally in risk assets in Asian and early European trade today with AUD/USD breaking out above the 1,0550 level while EUR/USD recaptured the 1.3100 figure. Spain was able to auction off nearly 5.5B of fresh bonds with yield on the 2018 dropping markedly to 4.033% from 4.7969% the period prior. The bid to cover ratio also improved significantly to 2.6 from 2.1 at last auction.

The strong Spanish bond auction as well as the good uptake of Italian 1 year bills which saw funding costs reach a 3 year low, suggest that investor demand has clearly returned to the European periphery markets validating Spain’s decision not to apply for OMT program but rather to continue to finance its operations organically. If this trend continues into the year it should provide considerable financing relief to EZ periphery governments and go a long way towards helping to control fiscal budgets for those nations.

Although financing terms have eased for the region, the key question for the EZ periphery going forward is whether it can begin to manufacture growth as the year proceeds. To that end today’s ECB press conference could be key. Although few market analysts expect the ECB to set any new policy goals today, traders will be keen to hear Mr. Draghi’s assessment of conditions on the ground. Last time, his dour views sent the euro plunging as he slashed growth estimates for the EZ as a whole. If he is more optimistic as today’s presser the euro could rally further as investor optimism rises.

Elsewhere Chinese trade data handily beat expectations spurring a strong rally in risk assets in Asian session trade as it pushed AUD/USD through the key 1.0550 resistance level. Chinese Trade surplus increased to 31.6B versus 20.1B eyed as exports rose by a whopping 14.1% in the month of December.Imports grew by a more subdued rate of 6%.

The strong pick in Chinese trade numbers suggests that global demand remains more robust than the consensus view as consumers in both Europe and North America continue to spend despite economic and political problems in both regions. It may also reflect the growing importance of intra-Asian trade as China continues to expand its economic dominance of the region.

The surprisingly strong numbers helped boost demand for risk assets in Asia with region’s equity markets responding positively to the news. In FX the Aussie was the prime beneficiary of investor optimism as the pair finally broke through the key 1.0550 resistance level in the wake of the news. The Aussie has been capped by concerns that demand from China may be slowing and recent spate of Australian domestic statistics confirmed a decline in economic activity. Today’s data however, provides fresh hope that demand from China may revive as evidence by sharp rise in iron ore price since their lows in September.

In North American trade the focus will clearly rest on Mr. Draghi. If his outlook suggests that he is seeing a modicum of improvement or at least some stabilization in the region, the EUR/USD could propel higher and possibly test the 1.3150 level as the day proceeds. The pair has been holding tough above the 1.3000 level despite worries over growth and political stability. If some of those concerns begin to ease today, the pair should begin to move higher.

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