Intraday Market Thoughts

Draghi Weighs on Comms FX; China CPI on Deck

by Ashraf Laidi
Dec 8, 2011 23:34

A spike reversal in the euro on the absence of ECB bond buying made for a messy day of trading. USD and JPY were the top performers while AUD and CAD lagged. A series of major data releases are scheduled in Asia, including Chinese CPI and Japanese GDP. Our latest euro charts show the consolidation could be turning into an impending selloff.

EUR/USD jumped to a session high of 1.3459 at the outset of Draghis press conference then tumbled as low as 1.3290 when no bond buys were unveiled. The announced liquidity measures were positive (see Ashrafs note) but were far outweighed by inaction on bonds. A report the ESM will be given a banking license was also denied by Germany, causing further EUR volatility.

With the EU Summit now only hours away, expectations are rapidly declining and the effect has been an outsized drop in risk currencies. AUD and CAD posted textbook reversals on the daily charts.

US economic data was encouraging with jobless claims falling to 381K from 404K (exp 397K) and wholesale inventories rising 1.6% versus the 0.4% climb expected.

ES, Gold, US crude, EURUSD, USDCAD are some of the trades in our Thursday Premium Trades w/ charts on EURUSD 1 month volatility and EURUSD/SPX Correlation. Direct access here: Non Subscribers can click here:

Japan GDP Preview

A busy finale to the Asia-Pacific week starts with Q3 Japanese GDP at 2350 GMT. The Q2 6.0% annualized rate is expected to slow to 5.2%, or 1.2% q/q. There is considerable mystery about the numbers and the possibility of a large upside surprise because the government has changed calculation methods to include interest rate spreads and will tally in-house corporate software as a capital expenditure. Second quarter GDP will also be recalculated. In light of this, the market will eye all the numbers with skepticism and there may be an opportunity to fade any large initial yen move.

China CPI, Industrial Production and Retail Sales

China reports on November CPI and PPI at 0130 GMT. The emphasis will be on how large the decline will be compared to the 5.5% y/y CPI reading in October and 6.5% reading in July. The consensus forecast is for a slide to 4.4% and a -0.1% monthly fall. If the PBOC and govt believe slowing inflation is sustainable they may hint at easing borrowing rates/restrictions in a move that would pump up risk assets.

At 0530 GMT, China releases industrial output, which is expected to slow to 12.8% y/y from 13.2%. At the same time, retail sales are forecast at 16.9% y/y compared to 17.2% in October. These numbers will have large implications for commodity FX and pre-date apprehension partly weighed on AUD Thursday.

Adam Buton


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