Summary: The Euro was softer overnight after Moody’s put Spain’s credit rating on downgrade warning. While the EUR/CHF hit a fresh record low, the EUR/USD did manage to pare its overnight losses. The Pound (GBP) was weaker against the USD and EUR following a weaker monthly jobs report. In the NY session, the USD firmed a bit after consumer inflation data that showed core annual prices increasing, and a strong turnaround in the Empire manufacturing index.
The Euro was softer overnight after Moody’s knocked Spain’s credit rating, the Pound slid following a weak Jobs Report, and in the NY session, the USD firmed after consumer Inflation and Manufacturing Data.
Let’s look at our top stories:
Euro Feels Pain From Moody’s Warning on Spain
The euro hit a fresh all-time low against the safe-have Swiss franc in European trading hours Wednesday as euro-zone sovereign debt concerns resurfaced after Moody’s Investors Service Inc. placed Spain’s sovereign credit rating on review for downgrade.
Moody’s may downgrade its ratings on Spanish government debt, citing the country’s challenging refinancing needs next year and a complicated outlook for the country’s banks and regional governments.
The rating agency said a downgrade could be triggered by “Spain’s vulnerability to funding stress given its high refinancing needs in 2011,” a problem that has recently been amplified by fragile market confidence.
USD Supported by FOMC, GBP Down on Employment Data
US – The USD was supported overnight against the yen and the commodity-linked currencies of Canada and Australia after the Federal Reserve’s policy statement reinforced expectations that it would complete its plan to buy $600 billion of Treasurys by June. The greenback benefited as the Fed didn’t show clear signs that more quantitative easing is needed to revive the U.S. economy.
Meanwhile, the pound lost some ground against the dollar after data showed U.K. unemployment in the three months to October rose for the first time in six months.
In the NY session, we got data on consumer prices as well as the Empire manufacturing index which came in better than expected, causing US yields to move higher, and firming the USD.
UK Employment – Unemployment Rate Climbs for First Time in 6 Months
Let’s start in the UK. The UK unemployment rate for the three months through October rose for the first time in six months. It climbed to 7.9% from 7.7%. The Claimant Count for November, the monthly measure of new claims for unemployment benefits fell by 1.2K, smaller than the -2.9K drop in claims expected.
GBP/USD
The GBP/USD moved strongly in favor of the Dollar overnight, breaking the pair out of an upward sloping channel, and moving below the 200-period MA at around the 1.5750 level. The pair then swung to its next pivot of 1.5650. That GBP has been strong of late on the back of some better data, but the employment report may bring the Pound back down to earth.
EUR/GBP
There’s some topping action in GBP/JPY and the recent events in Europe have helped the EUR/GBP to move above 0.85. That’s an extension of the move from Monday’s trading and if this break of resistance is confirmed, we should be heading to 0.86.
EUR/USD
Looking at the EUR/USD, we see that overnight the pair fell through our lows from yesterday at around 1.3370, and slipped down to 1.3285, near our 200-period MA. That was also a 61.8% retracement of the rally to open the week. Following the move back up to 1.3380, the US data helped to stop the EUR gains, but with the US data out of the way, seems we are still in choppy trading conditions. A break of 1.3380 means we target 1.35, a break below 1.3285 means we head towards our next pivots at 1.3250 and 1.32,
USD/JPY
In the USD/JPY we see the pair moving a bit more in the USD direction, hitting a high of 84, then topping off. We remain firmly with our trading range, and we now foal in the upper half of that range following yesterday’s move above our MA and today’s extension. US yields were higher today following the reports which helped support the USD.
US Consumer Prices
Let’s go ahead and take a look at that US data. Consumer prices rose 0.1% in November, with the core rate (ex- food and energy) climbing 0.1%. The headline rate was expected to rise 0.2%, while the core rate matched expectations. Both food and energy prices were up 0.2%.
Looking at the annual data, CPI was steady at +1.1% but core prices did rise to 0.8% from 0.6%. It had been expected to remain steady as well.
Stronger than expected inflation would push bond yields in the US, which acts to support the USD. In today’s data, the stronger than expected core annual rate did the trick, and bond yields did move higher.
Empire Manufacturing Index and Industrial Produciton
Helping was the Empire Manufacturing Index, in which the general business conditions index bounced back above zero, climbing 22 points to 10.6. That 22 point swing is another piece of positive news in the US data stream.
At 9:15AM ET, the US released its Industrial Production figures. It showed output climbing 0.4% in November. That was around the median forecast of economists. Capacity Utilization rises to 75.2%.
All in all, today’s reports continue the better data from the US which may cause economists to revise up their forecasts of US growth. With the extra push of the Fed’s bond purchases and the tax deal working its way through the US Congress, it could mean a stronger USD in the next few months.
http://www.fxtimes.com/
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