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FOREX: Euro Debt Crisis Fears Grow Anew, French Bond Sale in Focus

FOREX: Euro Debt Crisis Fears Grow Anew, French Bond Sale in Focus

2012-01-05 07:37:00
Ilya Spivak, Head Strategist, APAC
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Talking Points

  • US Dollar Gains as Asian Stocks Decline, Stocking Safe Haven Demand
  • Australian Trade Balance, Services PMI Data Point to Slowing Growth
  • French Bond Auction in Focus as Eurozone Debt Crisis Fears Resurface
  • S&P 500 Index Futures Favor Risk Aversion, ADP Jobs Report on Tap

The US Dollar (ticker: USDollar) pushed higher against its leading counterparts in overnight trade as Asian stock exchanges fell, stocking demand for the go-to safe haven currency. The sentiment-linkedAustralian Dollar bore the brunt of the selloff – down as much as percent against its US namesake – after the AiG Performance of Service Index printed below the 50 “boom-bust” level, showing the non-manufacturing sector contracted for a third consecutive month, while the Trade Balance surplus narrowed to the smallest in 9 months as exports to China slumped 15.8 percent. The East Asian giant is Australia’s largest trading partner.

Looking ahead, a quiet economic calendar keeps the focus on Eurozone debt crisis issues, with the spotlight turning to a Frenchbond auction. The currency bloc’s second-largest economy is set to sell 2021-2041 paper, with traders keeping a close eye on average yield levels and bid-to-cover readings – a measure of demand – to get a sense of sovereign solvency fears in the region as Eurozone countries face the need to refinance a whopping €157 billion in maturing debtjust in the first three months 2012.

The 3-month Euribor-OIS spread, a measure of liquidity risk, rose for the first time in a week yesterday while the ECB reported that banks parked a record €453 billion in its deposit facility yesterday. This means banks remain jittery and reluctant to funnel any of the nearly €500 billion they borrowed via the central bank’s 3-year LTRO into the real economy. On balance, this points to renewed deterioration in credit markets and may produce a disappointing outcome at the debt sale, weighing on the Euro.

On the sentiment front, S&P 500 stock index futures are trading meaningfully lower in late Asian hours, hinting at the return of risk aversion that offers a lifeline to US Dollar at the expense of stocks-correlated currencies. The US ADP Employment gauge will enter into the picture in the afternoon and may stoke volatility as traders position for Friday’s all-important official jobs report. Expectations call for an increase of 178,000 in December compared with 206,000 recorded in the preceding month, alluding to a slowdown in hiring. Interestingly, forecasts for official overall nonfarm and private-sector payrolls paint the opposite picture, showing hiring will accelerate.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

22:30

AUD

AiG Performance of Service Index (DEC)

49.0

-

47.7

23:50

JPY

Monetary Base (YoY) (DEC)

13.5%

-

19.5%

0:30

AUD

Trade Balance (A$) (NOV)

1380M

1650M

1418M

2:30

CNY

China HSBC Services PMI (DEC)

52.5

-

52.5

5:00

JPY

Vehicle Sales (YoY) (DEC)

23.5%

-

24.1%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:00

EUR

German Retail Sales (MoM) (NOV)

0.2%

0.7%

Low

7:00

EUR

German Retail Sales (YoY) (NOV)

0.7%

-0.4%

Low

7:45

EUR

French Consumer Confidence Indicator (DEC)

80

79

Low

9:00

EUR

Italian Unemployment Rate s.a. (3Q)

8.1%

8.0%

Low

9:00

EUR

Italian Unemployment Rate s.a. (NOV P)

8.5%

8.5%

Low

9:30

GBP

Purchasing Manager Index Services (DEC)

51.5

52.1

Medium

9:30

GBP

Official Reserves (Changes) (DEC)

-

-$249M

Low

10:00

EUR

Euro-Zone Industrial New Orders (YoY) (OCT)

3.3%

1.6%

Low

10:00

EUR

Euro-Zone Industrial New Orders (MoM) (OCT)

2.5%

-6.4%

Low

10:00

EUR

Euro-Zone Producer Price Index (MoM) (NOV)

0.1%

0.1%

Low

10:00

EUR

Euro-Zone Producer Price Index (YoY) (NOV)

5.2%

5.5%

Low

10:00

EUR

France to Sell 2021-2041 Bonds

-

-

High

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2796

1.3045

GBPUSD

1.5534

1.5666

--- 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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