Euro Leads, Aussie Lags as Risk FX Diverges

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Market Drivers Jan. 17, 2013
Australian employment misses badly
Spain sell full allotment at lower yields, EURCHF hits fresh highs
Nikkei 0.09% Europe 0.09%
Oil $94/bbl
Gold $1681/oz.

Europe and Asia:
AUD Employment Change -5.5K vs. 2.3K
AUD Unemployment Rate 5.4%
AUD Consumer Inflation Expectation 2.0% vs. 1.8%
EUR ECB Publishes Monthly Report

North America:
USD Building Permits 8:30
USD Housing Starts 8:30
USD Initial Jobless Claims 8:30
USD Philly Fed 10:00

Strong Spanish auction results and further positive comments by European officials helped drive EURUSD higher in early European trade this morning while EURCHF continued to set fresh yearly highs breaking the 1.2450 barrier. The Aussie on the other hand tumbled hard after employment data missed its mark.

Spain was able to auction off more than 4.5B EUR bonds coming in at the top of its range as yields continued to tumble. The yield for the 2015 came in at 2.713% versus 3.358% the period prior, for 2018 the average yield declined to 3.770% versus 3.988% while the longer term bonds of 2041 saw a more modest compression to 5.698% versus 6.002%. The bid to cover ratios were not as strong as last time with 2015 trance seeing only 2.0 versus 4.8 .

Still the Spanish auction reaffirmed the recent wave of investor confidence with regard to fiscal finances and helped keep EURUSD bid as sentiment improved. The single biggest beneficiary of the unwind of the “Euro breakup” trade was EURCHF which continued its torrid climb higher hitting fresh yearly highs of 1.2452 before easing off a bit.

The rally in EURCHF has been nothing short of astounding as the pair has now tacked on more than 350 points since the start of the year. The short covering squeeze has been relentless, but the pair now faces formidable resistance at the 1.2500 level and is likely to stall a bit and digest its gains as the initial enthusiasm wears off.

Meanwhile in Australia the employment data surprised to the downside as the country lost -5.5K jobs versus expectations of gains of 2.3K. The unemployment rate remained at 5.4%. More importantly full time employment declined by -13.8K while part time jobs increased by 8.3K. The news suggests that Australian economy may continue to slow in the first half of this year and leaves open the possibility of further rate cuts by the RBA is the labor trend continues to worsen.

The Aussie tumbled below the 1.0500 barrier in afternoon Asian trade before stabilizing slightly in European session. Still the pair remains vulnerable to further correction and another break below the 1.0500 barrier could open the way for a steeper selloff towards the 1.0400 figure.

In North American trade the calendar carries only Jobless claims and Philly Fed data so price action may remain subdued. The EUR/USD still faces considerable resistance at the 1.3400 figure where it has failed twice this month, but if the positive risk appetite continues into US session the pair may make another run at that target as the day proceeds.

Boris Schlossberg
Managing Director

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