USD Struggles to Find Direction
- GBP: The Clear Leader on the Day
- USD Yields Rise Considerably
- Yen Weakens Off Against the Big Dollar
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GBP: The Clear Leader on The Day
Overall, currencies traded decidedly range bound overnight. Volumes were light, the risk atmosphere was roughly balanced and the US dollar struggles to find direction as the deficit problems loom in the forefront, offset by European debt worries. It is interesting that we are heading into 2011 with a much more sombre attitude toward the markets; they have stabilized, sure, but there are not many who project a period of strong growth, and certainly not US led growth as we continue to emerge out of the drawn out economic stagnation. Although we are a couple years removed from the financial crisis that changed the face of finance and crippled growth, we are still dealing with the fallout around the globe, and will continue to do so for many months, if not years to come.
As mentioned, there was not a lot of FX rate movement overnight, with diversions in many currencies. The GBP was the clear leader on the day, currently up .3%, others followed trading unchanged on the day, the CAD, AUD, CHF, but there were also a few currencies losing value against the greenback, the EUR, NZD, and most notably the JPY were in this group. In equity, the story was much the same with Asian indices mixed, the Nikkei and Topix were up close to a percent but the Hang Seng lost 1.43% on the day. Europe was even more balanced with the STOXX 50 up .5% at writing, the FTSE was very marginally positive and the DAX was essentially flat down 0.02%.
USD Yields Rise Considerably
As far as the USD was concerned, the big news was contained to Treasuries as yields rose considerably over the last two days. It is noted that last December yields rose 70bpts on the 10yr, and we are witnessing much the same so far this December. This move is attributed to a mosaic of factors, but most notably the announced US tax cuts (or extension of the cuts) was the main driver. Yesterday, Obama announced a package extending tax cuts and unemployment benefits which sparked the selloff in Treasuries, which drove yields higher. The other factors which are in play are the massive deficit, and Moody's expressing concern over US debt which put a renewed cost or risk to investing in US bonds. This also has a US impact and should keep it stabilized with a slight bid tone, all else equal - which is never the case in currency!
Canada has been trading notably strong, and USDCAD continues to slowly grind lower. Par provided to be stiff support to end last week and start this week, and we popped up (CAD weakened) slightly but today are still trading with a CAD bias. Although USDCAD might see some trading under par if the USD remains under pressure, these are still relatively low levels.
Yen Weakens Off Against The Big Dollar
The other most noteworthy currency was the Yen, which weakened off against the big dollar as investors moved back into the big dollar. We have felt the JPY to be overvalued for some time, but the atmosphere led to a sustained downward move in USDJPY over the last half year, but since early October we have been trending higher, after putting in what looks to be a bottom. Looking at the charts, we did breach a fairly significant channel level around the 83.50 mark which could signal further Yen weakening in December. However, much like other currencies the outlook is balanced but if the uptrend continues look for resistance at 86.30, the 200day EMA level.
Overnight Data
In Australia, monthly Home Loans came in at 1.9%, well above expectations and last month reading, at 0.1% and 1.3% respectively. This was a further sign that the Aussie economy continues to charge ahead, being tied to those Asian countries that are, to a large degree, driving world growth. In Europe, Germany announced Industrial Production figures at 2.9%, also beating expectations at 1.1%. The Euro did not actually gain on the news, players are more concerned with the debt problems of the PIIGS countries and others, if Germany does not share there is still not a lot of positivity for the Euro region as a whole! Canadian Housing starts were the only relevant NA data outside of Crude oil inventories. Housing starts were again above expectations of 187k vs 174k. Good news all around, too bad there is not a lot of focus on these reading with the more general themes in the market taking center stage. Later this afternoon we have the NZ rate announcement, there is unlikely to be any deviance from current 3.0% levels.
Have a great day.
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