Intraday Market Thoughts

EURUSD at 1.2960, Rumours of French Downgrade

by Patrik Urban
Dec 14, 2011 12:39

EURUSD hit $1.2970s, UK labor market data mixed; Swiss ZEW declined; Eurozone industrial production lower. Italian auction results in higher yield and lower cover but reaches intended target. NY session will bring import prices, Canadian leading indicators and manufacturing sales. Here is Ashraf's interview in later September making the case for $1.29 by year-end

USD is higher across the board as the attack on the Euro continues. EURUSD breaks below 1.30 at lowest since January 2011. European equities are losing -0.8 to -1.5%.

Rumours of a France downgrade are swirling again as markets await the reaction by S&P to the EU Summit. But French 10-yr yields are actually down at 3.19%, while the spread w/ German 10 yr yields is 1.23% from the 1.90% high reached in Nov.

In the UK, claimant count rate remained at 5% in November while jobless claims reached 3K from previous 2.5K. Even though the claims were significantly below expectations of 14K, the total number of claimants reached the highest level in nearly two years. The ILO unemployment rate kept steady at 8.3%. According to the Office for Budget Responsibility, the unemployment would reach 8.7% in 2012. GBPUSD moved higher on the release but has since lost its gains and trades below 1.55

Swiss ZEW economic expectations index dropped in December to -72 from previous -64.3 supporting the expectations of a sharp slowdown. Somewhat surprisingly, 70% of surveyed experts are expecting the price level to remain steady. The eagerly awaited SNB meeting which could possibly result in an increase of the EURCHF peg is due tomorrow at 3:30 am ET. EURCHF trades firmly above 1.23

Eurozone industrial production declined in October -0.1% after it declined -2.0% in September which translates to 1.3% from 2.2% annual growth.

Italy was able to sell EUR 3 bln 2016 BTP reaching its intended target amount. However, the average yield increased to 6.47% from previous 6.29% while bid to cover declined to 1.42 from 1.47. After the auction, 10 year Italian-German spread increased to over 500bp. Meanwhile, Germany completed 2011 funding with today's auction and sold its 2 year with the lowest yield since Euro introduction.

The New York session kicks off at 8:30 am ET with November import price index that is expected to rise to 1% m/m from previous -0.6% but decline y/y to 10.1% from 11%.

Canadian leading indicators are seen higher in November at 0.4% from 0.2% while manufacturing sales are anticipated lower in October at -0.6% from 2.6%. Both are due also at 8:30 am ET.

Crude oil inventories due at 10:30 am ET are expected to drop -2.2M barrels after growing 1.3M barrels last week.


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