FOREX: Euro Eyeing Merkel, Monti Meeting Amid Italy Downgrade Fears

2012-01-11 07:00:00 Ilya Spivak, Head Strategist, APAC

Talking Points

US Dollar Recovers Overnight Despite Asian Stocks Advance
Spotlight on Merkel/Monti Meeting, German Bond Sale in Europe
Fed Beige Book, Q4 Earnings May Renew USD Selling Pressure

The US Dollar (ticker: USDollar) recovered in overnight trade, rising against all of its major counterparts as currency markets digested the previous two days’ selling of the go-to safe haven currency. While Asian stocks rose, the move seemed to reflect follow-through from North America rather than the emergence of new materially supportive catalysts. More telling, S&P 500 stock index futures fell by as much as 0.3 percent, hinting yesterday’s surge in risk appetite is being at least partially unwound as markets take on a more neutral tone as traders wait for the next major driver of sentiment trends.

The economic calendar is relatively quiet in Europe, with a German bond auction amounting to the only noteworthy bit of event risk. Berlin will sell up to €4 billion in 5-year paper, with traders keeping an eye on average yield and bid-to-cover readings to measure the degree of near-term sovereign solvency fears in the Eurozone. A meeting between German Chancellor Angela Merkel and Italian Prime Minister Mario Monti may prove more interesting – particularly after ratings giant Fitch said it may soon downgrade the Euro area’s third-largest economy yesterday – as policymakers continue to lay the groundwork for the January 30 European Union summit.

Later in the session, the spotlight will turn to global economic growth trends, with the Federal Reserve Beige Book survey of regional economic conditions in focus amid hopes that pickup in the US will help offset slowing performance in Europe and Asia. The same considerations will see markets monitoring the onset of the fourth-quarter corporate earnings reporting season, with retailer SUPERVALU Inc and builder Lennar Corp on tap to publish results. Supportive outcomes on either front threaten to dent safe-haven demand and renew selling pressure on the greenback against its sentiment-linked counterparts, with outsized gains reserved for the cycle-sensitive commodity bloc currencies (Australian, Canadian and New Zealand Dollars).

Asia Session: What Happened

GMT	CCY	EVENT	ACT	EXP	PREV
23:50	JPY	Official Reserve Assets ($) (DEC)	1295.8B	-	1304.8B
0:01	GBP	BRC Shop Price Index YoY (DEC)	1.7%	-	2.0%
0:30	AUD	Job Vacancies (NOV)	-3.3%	-	3.2%
5:00	JPY	Coincident Index CI (NOV P)	90.3	90.3	91.4
5:00	JPY	Leading Index CI (NOV P)	92.9	92.9	92.0

Euro Session: What to Expect

GMT	CCY	EVENT	EXP	PREV	IMPACT
8:00	EUR	German Public Finances Balance to GDP (2011)	-	-4.3%	Medium
8:00	EUR	German Real GDP (2011)	3.0%	3.6%	Low
9:00	EUR	Italian Deficit to GDP YTD (3Q)	-	5.3%	Low
9:30	GBP	Visible Trade Balance (£) (NOV)	-8400M	-7557M	Medium
9:30	GBP	Trade Balance Non-EU (£) (NOV)	-5000M	-4554M	Low
9:30	GBP	Total Trade Balance (£) (NOV)	-2400M	-1552M	Low
10:15	EUR	Germany to Sell €4B 5-Year Bonds	-	-	High
12:00	EUR	Germany’s Merkel, Italy’s Monti Meet in Berlin	-	-	High