euro open

Key Overnight Developments

• New Zealand Current Account Gap Narrows as Imports See Record Drop
• Euro, British Pound Push Higher Against US Dollar in Late Asian Trading

Critical Levels



The Euro and the British Pound surged higher just ahead of the opening bell in Europe after consolidating in narrow ranges through much of Asian trading, adding 0.4% apiece against the US Dollar. We remain short EURUSD at 1.4881 and short GBPUSD at 1.6648.

Asia Session Highlights



New Zealand’s Current Account figures showed a deficit of –NZ$1.41 billion in the third quarter, a smaller shortfall than the -2.03 billion that economists predicted ahead of the release. In annual terms, the deficit narrowed to NZ$5.72 billion, the smallest in six years, as rising unemployment discouraged spending and weighed on import demand. Indeed, the jobless rate hit a 9-year high of 6.5% in the three months to September while imports fell at an annual pace of -23.4% over the same period, the most in 19 years. The dire state of domestic consumption is underscored by the fact that the New Zealand Dollar gained a hefty 7.82% in the third quarter following substantial gains in the first half of the year, which would be expected to boost import demand by making foreign-made goods comparatively cheaper for New Zealand consumers. Still, the external deficit took off just -3.1% from overall economic growth, the least in over 7 years, with a report to be released tomorrow expected to show that GDP added 0.4% in the third quarter after emerging from recession in the three months to June. The return to economic expansion (albeit after a very sharp downturn) has inspired a hawkish shift in the rhetoric coming out of the Reserve Bank of New Zealand, boosting traders’ rate hike expectations.


Euro Session: What to Expect



The final revision of third-quarter UK Gross Domestic Product figures headlines the calendar in European hours, with expectations calling for the decline in economic growth to be trimmed to -0.1% from the originally reported -0.3% figure. The annual pace of contraction is also set to reflect a slightly more moderate -4.9% decline rather than the initially released -5.1% figure. Still, the bottom line remains changed: the UK continues to lag behind the Euro Zone, the US and Japan, all of whom posted positive quarterly outcomes in the three months to September. Additional fiscal stimulus will be hard to come by as the soaring budget deficit threatens the UK sovereign credit rating, so the release stands to generate meaningful positive momentum only in the event that a significant portion of the upward revision comes from an upgrade to private-sector consumption and/or investment, giving hope that the economy is starting to show some signs of self-sustaining recovery. Beyond such an outcome, tonight’s release is unlikely to have much of a lasting impact on price action, with monetary policy remaining as the only vehicle left to lift Europe’s third-largest economy out of the deepest slump since the Second World War and no significant changes expected on that front until the effects of November’s expansion of the central bank’s quantitative easing measures are sized up in February.

Turning to the continent, the GfK measure of German Consumer Confidence is expected to decline for fourth consecutive month in January, likely echoing concerns about fading fiscal stimulus. In particular, German consumers have reason to worry about the unwinding of the “short hours” work programs where the government paid companies to retain workers on shortened schedules rather than fire them, a scheme that has kept Germany’s jobless rate substantially lower than the Euro Zone average.

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