Intraday Market Thoughts

Euro Slips on German Comments; GBP Strong Despite Weak Data

by Patrik Urban
Dec 7, 2011 12:28

German official pessimistic about EU summit; UK manufacturing and industrial production decline; German industrial production increased. Market turns to UK NIESR GDP estimate, crude oil inventories and later to RBNZ rate announcement. See status on last night's Premium trades below.

USD edges high as risk appetite wanes, with the biggest losers being EUR, NZD and CHF. CAD & AUD are holding steady. European equities are higher by 0.1% to 0.5%.

Market sentiment reversed and risk aversion increased after MNI reported that senior German official expressed more pessimism on a chance of a EU summit deal. EURUSD sold off from around 1.3440 to 1.3369.

In the UK, manufacturing production declined -0.7% in October from previous +0.1% (0.3% from previous 1.3% y/y). Industrial production fell -0.7% from unchanged print in September (-1.7% from -1.5% y/y). Manufacturing sector provides more than 10% of UK GDP (industrial production over 15%) so the probability that Q4 GDP will contract is high. GBPUSD trades slightly weaker around 1.56.

German data surprised to the upside second day in a row as industrial production rose in October 0.8%, significantly higher from previous -2.7%.

The NY session starts at 8:30 am ET when FED governor and FOMC member Sarah Bloom Raskin gives a speech in Baltimore.

GBP volatility could increase at 10:00 am EST when the NIESR GDP estimate is due and is expected at 0.5%, unchanged from a previous reading. Given the weak manufacturing result from earlier today, GBP will be more sensitive to a disappointment.

Crude oil inventories due at 10:30 am are expected to decline to -0.8M barrels from previous +3.9M which could underpin oil and consequently the CAD.

At 3:00 pm, the RBNZ announces its rate decision. In a Bloomberg survey, all 15 economists expect the official cash rate to remain at 2.5%. Nevertheless, the NZD could weaken as the policy statement is likely to express that rates are likely to stay at record low due to continued market distress and the ongoing crisis. The fundamentals also point to a slowdown which further suggesting no rate increases in the near future. The unemployment rate ticked up to 6.6% in Q3 from 6.5% seen in Q1 and Q2, the annual CPI declined to 4.6% from previous 5.3% and Q2 GDP fell to 0.1% from 0.9% in Q1.

Those holding our PREMIUM SHORTS in AUDNZD, bear in the RBA has cut rates yesterday. Both of last nights premium trades in EURUSD were done. USDCAD shorts are nearing their target, while our US crude longs were filled. EURJPY, EURGBP and GBPCAD remain in progress. And do not forget gold, which is charted on Daily & weekly charts in last nights Premium piece. For direct access to the latest Premium Intermarket Insights, click here: Non-members can get a free 1-week trial here:


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