EU Morning Report – Focus still on Greece’s Credit woes and Japan deflation worries!
Monday, December 21st, 2009Thin markets, focus still on Greece’s Credit woes and Japan deflation worries!
- Friday foreign exchange trading was one with thin and volatile market conditions as no top tier economic data was released out of the US and the approaching holiday season been the main causes of this. Thin markets however tend to exaggerate moves as buyers or sellers tend to find it difficult to find a counterparty without widening the bid or the offer. The momentum in FX for the past 2 weeks was still in favor to the USD and thus the currency continued its ascent. With a more upbeat assessment by the FOMC, Credit woes in Europe and deflation issues in Japan all contributing to dollar purchases as an alternative. EURUSD retraced to 1.4405 as the EU session got under way and by the end of the US session it traded to a new 3 and half month low of 1.4255, which happens to be the 200 day moving average.
- On Friday the Bank of Japan clarified its definition of price stability and also reiterated its mandate on price stability. Previous definition of price stability was that CPI should be ”approximately between 0% and 2%”. However the BoJ went out of its way on Friday to clarify its new definition to CPI as ”must be in a positive range of 2% and lower, with the midpoint remaining at 1%”. The new language is designed to communicate intolerance for negative CPI given that currently Japans CPI is about -2.5% year on year. BoJ’s current policy rate is already at 0.1% meaning that any action in the markets must be in the form of more Quantitative Easing. The USDJPY on Friday started of the session at 88.89 and by the end of the US session it made a high of 90.91. USDJPY is cited to be the next carry trade funding currency by many market participants as yields in Japan are expected to stay near record lows while US yields have started to rise already.
- In the Euro focus was still on Greece and its credit rating troubles which helped push the Euro to fresh 3 and half month lows 1.4255. The ECB announced on Friday that it was examining ways on how banks which pledge Asset Backed securities with the ECB as collateral could be required to transpire loan level information. ECB member Papademos also warned that despite Greece’s credit difficulties it will not change existing plans to tighten eligibility criteria for collateral submitted to ECB tenders. ECB intends to go back to pre crisis criteria of A-, whereas Greece’s current rating is BBB+.
- Today markets are expected to be low on volume again as no major US or EU data out to excite the markets. ECB member Stark however will be giving a speech on the global financial crisis which may be of some interest as he may highlight any latest developments in Greece. Also Canada will release its Oct Retail Sales results.
Currency to watch out for:  EURUSD & USDJPY
- The EURUSD pivot point is at 1.4425 with a preference to enter into short positions at 1.4415
- The USDJPY pivot point is at 90.10 with a preference to enter into long positions at 90.15
Today’s calendar and market movers:
- Canada retail sales ex Autos for October is out today with expectation of 0.2% with a previous reading of 1.1%.
- ECB Governing council member Stark is set to give a speech on the Global Financial Crisis today.
Now onto Stocks:
- Equity markets in the US opened the session with strong gains following some positive news from the Tech sector, the DJIA closed the session at 0.2%. European equity markets closed the session in negative terrain overall with the DAX -0.23% the CAC -0.95% and the FTSE -0.4%. And in the Asian equity markets we see the NIKEI225 trading at +0.4% and the HSI at -0.48% at the time of writing
Written by Easy-Forex
