EURO
The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3165 level and was capped around the $1.3320 level. Technically, today's intraday high was right around the 23.6% retracement of the $1.2970 – 1.3440 range. The big news in the market today was a downgrade of Ireland's credit rating by Fitch Ratings to the lowest level by any of the three major ratings companies. Fitch lowered the rating to BBB+ from A+, the second downgrade in two months. The European Union overnight this week called for fresh stress tests on banks in the eurozone starting in February that will be "even more rigorous and comprehensive" than the tests undertaken in July. The new stress tests are expected to incorporate a liquidity assessment.
European Central Bank President Trichet was quoted this week as saying excessive foreign exchange volatility and disorderly moves are "adverse." For the first time in seven months, the yield on the 10-year German bund this week eclipsed 3% as traders are becoming increasingly skeptical the European Union will move quick enough to stop other credit crises in the eurozone. The German and French governments are pushing for another EU summit next month to approve a treaty change that would permit fiscally-overburdened eurozone countries to default in an orderly fashion with private bondholders sharing in some losses. The ECB's monthly report was published today.
German data released today saw November consumer prices up 0.1% m/m and 1.5% y/y while the harmonized index was up 0.1% m/m and 1.6% y/y. Q3 French non-farm payrolls were up 0.1% y/y. In U.S. news, data released today saw weekly initial jobless claims fall to +421,000 while continuing jobless claims narrowed to 4.086 million. Also, October wholesale inventories were up 1.9%. Data to be released tomorrow include the October trade balance, November import price index, and December University of Michigan consumer sentiment. Euro bids are cited around the US$ 1.3075 level.
JPY / CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥83.50 level and was capped around the ¥84.10 level. Traders pushed the pair lower below the ¥84.00 figure and reached stops below the ¥83.60 level, representing the 61.8% retracement of the ¥84.40 – 82.30 range. Data released in Japan overnight saw Q3 GDP growth come in at +1.1% q/q, above expectations, while the GDP deflator fell 2.4% y/y.
Also, November machine tool orders were up 104.2% y/y. The Q4 domestic corporate goods price index will be released tonight along with Q4 BSI manufacturing data followed by November consumer confidence data tomorrow. Bank of Japan Policy Board member Morimoto reported the yen's appreciation could have an "adverse effect" on domestic corporate activity and economic growth. He also said the move higher in recent long-term interest rates will not harm the economy. Former MoF official "Mr Yen" Sakakibara this week pessimistically noted "The world is set for a long-term structural slump reminiscent of the 1870s" and further predicted the slowdown could last as many as eight years. He added Japan will likely enter a double-dip recession from Q3 2011 and called on the government to increase bond issuance to stimulate fiscal spending. Minister for Economic and Fiscal Policy Kaieda suggested the government can do away with a rule that limits Bank of Japan's purchases of Japanese government bonds to the amount of bank notes in circulation. He suggested this be undertaken before legislators contemplate changing the existing Bank of Japan law to require the adoption of a formal inflation target. The Nikkei 225 stock index climbed 0.52% to close at ¥10,285.88. U.S. dollar offers are cited around the ¥84.60 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥110.55 level and was capped around the ¥111.65 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥131.75 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥84.90 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.6553 in the over-the-counter market, down from CNY 6.6629. Data to be released in China overnight include November trade balance numbers and tomorrow's data include November property prices, November CPI, November industrial production, November PPI, the November trade balance, and November retail sales. People's Bank of China Governor Zhou reported the central bank has increased its macroeconomic controls and the government reported China will move to a "prudent" monetary policy from a "moderately loose" stance. China is expected to aim for economic growth around 8% in 2011 along with 4% for inflation and CNY 6.5 trillion for new loans.
STERLING
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5710 level and was capped around the US$ 1.5840 level. Cable reached its highest level since 23 November before moving lower. Data released in the U.K. today saw November Halifax house prices off 0.1% m/m and the October total trade balance widened to -£3.946 billion. As expected, Bank of England's Monetary Policy Committee kept its Bank rate unchanged at 0.50% and the BoE asset purchase target was unchanged at £200 billion. Chancellor of the Exchequer Osborne this week defended BoE Governor King against recent criticism that he is "partisan," suggesting that observation is "wrong." He added the central bank is free to act "in either direction" with "maximum" policy flexibility and said King "speaks his mind." Cable bids are cited around the US$ 1.5295 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8415 level and was supported around the £0.8360 level.
SWISS
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 0.9810 level and was capped around the CHF 0.9895 level. Technically, today's intraday low was right around the 50% retracement of the CHF 0.9545 – 1.0065 range. Data released in Switzerland this week saw the November unemployment rate tick higher to 3.6% from 3.5% in October. Adjusted for seasonal variations, the November unemployment rate is the lowest since May 2009. Also, November foreign currency reserves climbed to CHF 212.4 billion from the prior level of CHF 211.9 billion. Swiss National Bank is expected to keep monetary policy unchanged when its next rate decision is announced later this month. U.S. dollar offers are cited around the CHF 1.0180 level. The euro depreciated vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.2975 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.5470 level.
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