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FOREX: Dollar Gains Sovereign Stress Returns Before Italian Bond Sale

FOREX: Dollar Gains Sovereign Stress Returns Before Italian Bond Sale

2011-12-12 09:31:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • Dollar Gains on Disappointment with EU Leaders’ Summit Outcome
  • Moody’s to Review All EU Credit Ratings in First Quarter of 2012
  • Chinese Trade Data Shows Exports Fell Most in Nine Months in Nov
  • Markets Show Signs of Sovereign Stress Before Italian Bond Auction

With little of note on the economic calendar, echoes from last week’s EU leaders’ summit find themselves as the top drivers of price action. As we suspected, this is proving to weigh on risk appetite, pressuring stocks-linked currencies and boosting the safe-haven US Dollar. A promise from Moody’s to review the credit ratings of all European Union countries in the first quarter of next year after the summit failed to produce “decisive policy measures” helped stock pessimism. Selling pressure was likewise compounded by Chinese Trade Balance figures released over the weekend that showed exports grew at the slowest pace in nine months in November.

S&P 500 stock index futures are pointing sharply lower in late Asian trade, arguing for continued risk aversion in the hours ahead. In term of scheduled event risk, an Italian bond auction is in focus, with €7 billion in 1-year bills up for sale. Traders will keep an eye on yield and bid-to-cover readings to gauge the level of sovereign stress back in the markets. As it stands, the spreads between 10-year bond yields for the so-called “PIIGS” and their benchmark German counterparts are widening anew, pointing to rising apprehension in lending to debt-strapped Eurozone countries. High-stress EU countries’ CDS rates – measuring the cost of insuring against a default – are also pushing higher.

Related: Dollar Moves Higher as EU Fails to Impress With IMF Plan; EU Summit Failure Risks Credit Downgrades in Europe

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:50

JPY

Domestic CGPI (MoM) (NOV)

0.1%

-0.1%

-0.8%

23:50

JPY

Domestic CGPI (YoY) (NOV)

1.7%

1.5%

1.6%

0:30

AUD

Home Loans (OCT)

0.7%

0.0%

1.9% (R-)

0:30

AUD

Investment Lending (OCT)

-5.5%

-

0.4% (R-)

0:30

AUD

Value of Loans (MoM) (OCT)

-1.2%

0.0%

0.6% (R-)

0:30

AUD

Trade Balance (A$) (OCT)

1595M

2000M

2249M (R-)

5:00

JPY

Consumer Confidence (NOV)

38.1

38.3

38.6

6:00

JPY

Machine Tool Orders (YoY) (NOV P)

15.9%

-

26.0%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

-

EUR

French Current Account (€) (OCT) (NOV)

-

-4.0B

Low

7:00

EUR

German Wholesale Price Index (MoM) (NOV)

-

-1.0%

Low

7:00

EUR

German Wholesale Price Index (YoY) (NOV)

-

5.0%

Low

7:45

EUR

French Wages (QoQ) (3Q F) (NOV)

-

0.4%

Low

10:00

EUR

Italy to Auction €7bn in 1-Year Bills

-

-

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3063

1.3453

GBPUSD

1.5364

1.5742

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow me on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com

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