EURUSD Boosted by EURJPY Flows

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Market Drivers Nov. 30 2012
Euro rallies through 1.3000 despite weak data
End of month flows, USDJPY M&A demand dominate trade
Nikkei .48% Europe 0.13%
Oil $88/bbl
Gold $1731/oz.

Europe and Asia:
JPY Nomura/JMMA Manufacturing PMI 46.5 vs. 46.9
JPY Household Spending -0.1% vs. -0.8%
JPY Jobless Rate 4.2% vs. 4.2%
JPY National CPI -0.5% vs. -0.4%
JPY Annualized Housing Starts 25.2% vs. 10.3%
EUR Eurozone Unemployment Rate 11.75
GBP GfK Consumer Confidence Survey -22 vs. -30

North America:
USD Personal Consumption Expenditure 8:30
USD Personal Income 8:30
USD Personal Spending 8:30
CAD GDP 8:30

Weak German Retail sales, tepid French consumption, record high unemployment rate in the EZ – none of these economic factors had any impact in FX trade today as the EURUSD rose through the 1.3000 level in Asian and early European sessions. The currency was happy to shrug off the dour economic news as traders focused on end of month flows, the rise in yen crosses and the swift passage of the Greek bailout deal the Bundestag.

Both German and French consumer data missed their mark, with German Retail sales contracting by -2.8% versus -0.3% while French consumer spending fell -0.2% versus -0.1% eyed. German Retail Sales hit a 38 month low erasing the small gains in September and bringing the annual rate of increase down to only 0.8%. All of the non-food items were down by -1.8% in September as consumers in Europe’s largest and wealthiest economy shut their purses tight in the wake of economic slowdown in the region. The decline in spending coincided with increase in German unemployment but forward data may provide some relief as unemployment losses in Germany appeared to have stabilized and November’s Markit retail PMI data showed broadly stable conditions.

Meanwhile the number of unemployed people in the Eurozone rose more sharply in October than in the previous month, lifting the jobless rate to a new high of 11.7%.The monthly rise in number of unemployed picked up to 173,000 in September. The record total of 18.703 million jobless was more than two million higher than a year earlier. Close to one in four persons under the age of 25 were out of work in the Eurozone.The EU commission expects the increase in joblessness to continue next year and only projects a recovery in 2014. If their base scenario turns out to be true, the recessionary impact on EU could once again revive sovereign debt pressures as revenues lag projections especially in periphery nations making financing difficult once again.

However, the FX market ignored the implications of a deep recession on European finances and instead trading was driven primarily by massive EUR/JPY flows. USD/JPY resumed its advance taking out the recent swing highs on reported M&A flows surrounding the Softbak/Sprint deal and continued accomodative rhetoric from Japanese officials with the latest idea suggesting that BOJ should purchase foreign sovereign bonds. Japan is already one the of the largests holders of UST, but this proposal would involve BOJ purchasing other G-20 paper all with the goal of further weakening the yen.

Month end flows may also come into play as the day progresses, but as we move into North America trade focus will turn once again to Washington DC where the political wrangling over the Fiscal Cliff continues. If there is even a hint of positive news, the EURUSD could make a run towards 1.3050 level as the day proceeds and risk appetite trumps any economic concerns.

Boris Schlossberg
Managing Director

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