Intraday Market Thoughts

Euro Tries to Hold on to Strong LTRO Boost

by Patrik Urban
Dec 21, 2011 13:01

Riskier assets soared after the LTRO announcement but declined equally quickly; 3 year LTRO allotted nearly EUR 490 bln; MPC minutes reveal unanimous votes, some members note that more QE may be needed. UK net public borrowing soared. Market turns to Canadian retail sales, US existing home sales, Eurozone confidence and later to NZ GDP. New Wednesday Premium Trades are up focus on US crude & CAD.

USD was initially lower across the board, especially immediately after the ECB LTRO was announced. However, sentiment reversed sharply and the USD was able to recover all losses. Biggest relative strength loser is CHF. Major European equities are higher by 0.5% to 1%.

Euro was inching higher ahead of the ECB LTRO announcement. In its first three year LTRO, the ECB allotted EUR 489.2 bln considerably more than expected EUR 300 bln which caused a spike higher in riskier assets. In its three months LTRO, the ECB allotted almost EUR 30 bln. EURUSD soared nearly to the 1.32 figure immediately after the release but has quickly given up its gains perhaps as the market could become concerned that banks would overexpose themselves to the Eurozone debt.

Periphery-German 10 year yield spreads widened again after they narrowed following the ECB announcement. Bunds traders note that low liquidity is causing choppy price action.

BoEs MPC minutes revealed that all members voted to hold rates steady during the 12/8 MPC meeting and that they agreed there was a little merit in changing asset buying. However, some noted that the outlook has deteriorated and that more QE may well be needed. In other news, public sector net borrowing has jumped in November to GBP 15.2 bln from previous GBP 3 bln. However, this increase was expected. GBPUSD trades below 1.57 after reaching a high at 1.5770.

Most of Tuesdays premium longs in Aussie, ES and CAD were unfilled due to rapid market moves, while both of the gold shorts were stopped out. Here are Wednesdays premium trades contain with a focus on oil, Aussie and CAD CAD Nonsubscribers can click here:

The NY session starts at 8:30 am ET with Canadian retail sales that are seen lower at 0.5% in October from 1% in September. Core sales are also seen lower at 0.3% from 0.5%.

US existing home sales are due at 10:00 am and are anticipated to rise in November to 5.09M from 4.97M. December Eurozone consumer confidence which is due at the same time is expected to decline to -21 from -20.4

Later in the session at 4:45 pm New Zealand will announce Q3 GDP growth that should reach 0.6% from 0.1% q/q and 2.2% from 1.5% y/y.


Latest IMTs