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FOREX: Euro Trend Hinges on Merkel / Sarkozy Meeting, French Bill Sale

FOREX: Euro Trend Hinges on Merkel / Sarkozy Meeting, French Bill Sale

2012-01-09 08:34:00
Ilya Spivak, Head Strategist, APAC
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Talking Points

  • US Dollar Seesaws with Risk Sentiment Trends in Overnight Trade
  • Fed’s Bullard Says Additional QE Unlikely as US Recovery Firms
  • Markets’ Focus Turns to Merkel / Sarkozy Meeting, French Bill Sale

The US Dollar (ticker: USDollar) was little changed in overnight trade against its leading counterparts. The go-to safe haven currency began the trading week on the upswing as Asian stocks fell following weekend comments from St. Louis President James Bullard, who said forecasters were “a bit too pessimistic” about the US economy, adding that additional quantitative easing (QE) was unlikely. Regional exporters count on US consumers for a hefty portion of their sales and fading stimulus hopes appeared to weigh on demand expectations.

The greenback erased early gains to trade effectively flat heading into European hours however as markets prepared for a much-anticipated meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel in Berlin. The two leaders are expected to begin working out the details of a much-promised “fiscal compact” initially unveiled in early December and meant to contain the Eurozone debt crisis. Traders will focus on the joint press conference expected to begin about an hour after the sit-down commences, looking for concrete details on fiscal integration with enough teeth to meaningfully allay fears of a sovereign default in a large member state like Spain and Italy, both of which are arguably too big to be bailed out with existing mechanisms.

The so-called “Franco-German axis” typically sets the agenda for the region as a whole, so the outcome of today’s meeting will be critical to lay out base case scenarios for the next EU summit on January 30. Regional leaders have given themselves until March to iron out the new fiscal arrangement, but a whopping €157 billion in debt is due to be rolled over in the interim, so EU policymakers’ ability to establish and managing positive expectations will prove critical in the months ahead to keeping a lid on bond yields, allowing Eurozone countries to refinance their obligations at as close to sustainable borrowing costs as possible.

The first test of their ability to do so will come mere hours after the Merkel/Sarkozy meeting at a French bond auction. Paris is set to sell up to €7.7 billion in 91-, 182- and 364-day bills today and traders will size up average yield and bid-to-cover readings following the auction as a snap assessment of solvency fears after what will at least try to sound like reassuring rhetoric from the French and German leadership. As it stands, S&P 500 stock index futures are pointing cautiously higher, pointing to sentiment on the upswing and suggesting profit-taking on short-risk positions may send the US Dollar lower against its stocks-linked counterparts in the coming hours.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

9:11

CNY

New Yuan Loans (DEC)

640.5B

575.0B

562.2B

9:11

CNY

Money Supply – M0 (YoY) (DEC)

13.8%

-

12.0%

9:11

CNY

Money Supply – M1 (YoY) (DEC)

7.9%

7.9%

7.8%

9:11

CNY

Money Supply – M2 (YoY) (DEC)

13.6%

12.9%

12.7%

21:45

NZD

Trade Balance (NZ$) (NOV)

-308M

-300M

-228M

21:45

NZD

Exports (NZ$) (NOV)

3.91B

3.90B

3.89B

21:45

NZD

Imports (NZ$) (NOV)

4.22B

4.20B

4.11B

21:45

NZD

Trade Balance YTD (NZ$) (NOV)

555

539

681

22:30

AUD

AiG Performance of Construction Index (DEC)

41.0

-

39.6

23:40

AUD

HIA New Home Sales (MoM) (NOV)

6.8%

-

5.5%

0:01

GBP

Lloyds Employment Confidence (DEC)

-75

-

-75

0:30

AUD

Retail Sales s.a. (MoM) (NOV)

0.0%

0.4%

0.2%

5:30

AUD

Foreign Reserves (A$) (DEC)

46.1B

-

44.8B

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:45

CHF

Unemployment Rate (DEC)

3.2%

3.1%

Medium

6:45

CHF

Unemployment Rate s.a. (DEC)

3.1%

3.0%

Medium

7:00

EUR

German Current Account (€) (NOV)

11.5B

10.3B

Low

7:00

EUR

German Trade Balance (€) (NOV)

12.0B

11.6B

Low

7:00

EUR

German Imports s.a. (MoM) (NOV)

0.5%

-1.0%

Low

7:00

EUR

German Exports s.a. (MoM) (NOV)

0.5%

-3.6%

Low

7:45

EUR

French Trade Balance (€) (NOV)

-6000M

-6248M

Low

8:15

CHF

Retail Sales (Real) (YoY) (NOV)

0.2%

-0.2%

Low

9:30

EUR

Euro-Zone Sentix Investor Confidence (JAN)

-24

Low

10:15

EUR

Germany Sells €4B in 6-mo Bills

-

-

High

11:00

EUR

German Industrial Production (YoY) (NOV)

-0.5%

4.1%

Medium

11:00

EUR

German Industrial Production (MoM) (NOV)

4.1%

0.8%

Medium

12:30

EUR

Merkel, Sarkozy Meet for Talks in Berlin

-

-

High

14:00

EUR

France Sells €7.7B in 91-364 day Bills

-

-

High

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2672

1.2858

GBPUSD

1.5359

1.5509

--- 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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