Equities Pull Risk FX Higher

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Market Drivers Dec. 6, 2012
Australian employment beats but Aussie cant break 1.0500
Risk FX very quiet ahead of Central bank meetings
Nikkei 0.85% Europe 0.91%
Oil $88/bbl
Gold $1693/oz.

Europe and Asia:
AUD Employment Change 13.9K vs 0K
AUD Unemployment Rate 5.2% vs. 5.4%
CHF Unemployment Rate 3.0% vs. 3.0%
CHF Consumer Price Index -0.3% vs. 0.0%
EUR ECB Rate Decision
EUR Eurozone GDP
EUR German Factory Orders
GBP BOE Rate Decision
GBP BOE Asset Purchase Target
GBP Visible Trade Balance -9.5B vs. 8.7B eyed

North America:
USD Initial Jobless Claims 8:30
CAD Ivey Purchasing Managers Index 10:00

Risk FX climbed steadily higher through quiet morning European dealing boosted by surging equity prices as German stocks approached their 5 year high. The euro recovered from an earlier selloff below the 1.3050 level to trade at 1.3077 while the Aussie inched its way towards the key 1.0500 level.

Australian employment handily beat market expectations but failed to lift the Aussie through the psychologically key 1.0500 barrier as the headline data masked some structural weakness in the labor market. Australia generated 13.9K new jobs in November versus forecasts of flat growth as the unemployment rate declined to 5.2% from 5.4% in October. This was the second month in a row that labor data has beaten market expectations suggesting that underlying trend in the Australian economy remains positive.

However, the headline numbers may have skewed the results to the upside limiting the impact of the data on investor sentiment. All of the job gains were due to part-time rather than full time employment, with full time jobs actually declining by 4,200 in the past month. Furthermore, the participation declined to 65.1 from 65.2 the month prior thus creating the drop in the unemployment rate.

The Aussie initially spiked to 1.0480 in the aftermath of the news, but failed to move higher as sellers capped the rally ahead of the key 1.0500 level. The latest labor data suggests that the RBA is likely to remain stationary for the foreseeable future, but in the current low volatility environment such lack of “negative” catalysts is not enough to lift the Aussie as the pair needs a strong dose of risk sentiment in order to clear the 1.0500 barrier. Perhaps tomorrow’s NFP report could spark some buying momentum if it beats the market forecast. For now however, the Aussie remains well contained in 1.0450-1.0490 range, although it made another attempt to run higher in mid morning European session.

Meanwhile in Europe, equity investors sent German stocks to their highest level in nearly 5 years as the DAX crossed the 7500 level. The news helped to lift EURUSD but only slightly as currency markets remained wary ahead of the ECB meeting at 13:30 GMT today. Quoting our colleague Kathy Lien, “When the ECB last met in November, Mario Draghi said he does not expect any major improvements in growth over the next year but more stimulus was not necessary because the availability of OMT has been enough to stabilize the financial markets and reduce bond yields. We don’t expect his views to have changed especially since Spanish 10 year bonds are now yielding 5.382% down from 5.836% the last time the ECB met. The central bank has made it abundantly clear that they are satisfied with the market’s reaction to OMT and the current level of monetary policy and we believe they will remain committed to providing unlimited liquidity. Since we don’t expect Draghi to say anything new, this month’s monetary policy announcement and accompanying press conference may have a limited impact on the EUR/USD.”

With central bank meeting likely to be a non-event the tight ranges may continue throughout the day as markets brace themselves for tomorrow’s NFP report which could be skewed markedly by hurricane Sandy. Although risk flows have been positive, the EURUSD continues to struggle to move higher as the 1.3100-1.3200 is proving to be very chunky resistance indeed.

Boris Schlossberg
Managing Director

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