Summary: Despite US GDP and existing home sales data coming in softer then expected, the USD was able to gain on the EUR and GBP, as the two European currencies struggle to end the year. The CHF took advantage by setting fresh record highs vs the EUR. The Pound tumbled on a downward revision to its GDP. The AUD and CAD were higher as stocks and oil were stronger.
China Boosts EUR by Saying It’ll buy Portuguese Bonds
The USD was weaker overnight in European trading hours amid reports that China is willing to buy EUR4 billion to EUR 5 billion of Portuguese debt. That helped boost risk appetite for the EUR and other riskier currencies, and weakened the more safe-haven USD.
The Chinese endorsement offset the latest negative euro-zone sovereign rating action from Fitch, which late Tuesday placed Greece’s ratings on review for a potential downgrade.
Portugal’s overall net supply is projected at around EUR17 billion in 2011, if China buys EUR4-5 billion in bonds it may only serve to alleviate some of the funding pressures.
EUR/USD – Euro Gives Up Overnight Gains
Heading into NY session, however the pattern we had talked about re-emerges, as USD weakness in EUR trading and heading into NY has been more often than not this past 2 weeks been followed by USD strength during the NY session. Today was no exception. We had some indigestion following the US GDP report which we will get to in a sec, but with housing sales and house prices data showing improvement, the USD erased its earlier losses vs. EUR and was testing this week’s low at 1.3080.
GBP/USD – Pound Tumbles Post 3Q GDP
Looking at GBP/USD, our awaited scenario finally played out in GBP/USD. We had a weaker GDP report – 3rd quarter was up 0.7%, not 0.8% as reported previously. That weighed on GBP, and after US data we had the Dollar accelerate its gains against sterling. We are setting fresh 3-month lows at 1.5375. We look back to September for our current pivot.
GBP/JPY – GBP Pressured Heavily
Since US GDP was a bit softer than expected, it was the JPY that wound up punishing the GBP today. was a main benefactor. GBP/JPY, after breaking support at 129.25, fell through that area, consolidated a bit, then extended its losses in NY.
What’s Up with GBP?
As we progress through this week, we continue to see a beleaguered GBP. The GDP data today showed consumer=spending growth slowed to 0.3% in the 3rd quarter compared to 0.8% gain in 2nd quarter. Recent data shows that the UK economy is maintaining momentum in the fourth quarter, weakening the case for additional stimulus by the BOE. Jobless claims fell for a second month – though the unemployment unexpectedly increased – and manufacturing strengthened. We also had inflation accelerate to its fastest pace since May last month. One of the main take-aways from the BOE Minutes that were released today was that the MPC “considered that the accumulation of news over recent months had probably shifted the balance of risks to inflation in the medium term upwards”. We had another three-way split.
That suggests that its next move is more likely to be a rise in interest rates than a boost to stimulus. Consumer confidence remains weak, and austerity measures are going to bite as government cuts back spending and taxes rise. If that is combined with higher inflation, it’s not the best mix, which may explain the volatility in the GBP right now, and why we’re moving lower despite the MPC focusing on higher inflation.
US GDP – Smaller Revision Misses Forecast
The third version of the US GDP release for the 3rd quarter undershot expectations but still shows a US economy that is picking up growth on the back of stronger consumer spending. There had been a build up to this report, with the consensus forecast coming in at around 2.8%. Instead we got a smaller increase to 2.6% from the preliminary estimate of 2.5%. Inventories rose more than initially reported, while the rise in household purchases was revised down. Growing incomes, the continuation of Bush-era tax cuts and an improving labor market may encourage Americans to boost their spending, which bodes well for the 1st quarter of next year.
US Existing Home Sales Rise Less Than Expected
Good report for housing in that we are seeing a pick up continue in existing home sales. The annual pace increased to 4.68 million annual rate in November, up from 4.43 in October. Inventories of unsold homes stand at 9.5 months.
Previous decreases in prices and mortgage rates have made houses more affordable, which may keep supporting demand after the end of a government tax credit caused the industry to slump.
EUR/CHF – Continuing to Set Fresh Record Lows
The Swiss franc rose broadly Wednesday, hitting a record high against the euro as investors continued to seek safety from the euro zone’s sovereign-debt crisis. The Swiss franc benefits from both safe-haven flows driven by the debt problems in the euro-zone periphery and the strong Swiss economic outlook. A double positive for the franc.
The onslaught of credit warnings and downgrades of sovereign ratings over the past few days added to worries that borrowing costs in many euro-zone nations would be pushed up further, undermining their economic outlook at a time when governments are putting out fiscal austerity programs to cut budget deficits.
That has taken this pair far low in the past two months.
USD/CHF – Breaks Support at 0.9560
The USD/CHF pair broke below its support level at 0.9560, and held below that level in later NY trading. New pivot is at 0.95.
AUD/USD – Aussie Tests Parity Yet Again
Aussie extended gains, as stocks moved higher in earlier NY trading. The AUD/USD moved above parity, before being turned back at 1.0008. We come close to testing our pivot at 1.0020. A break above there wuld have us target the 1.0150 area.
CAD/USD – Canadian Dollar Drops Through Pivot
The CAD/USD fell below its recent pivot at 1.0150. That had acted as support in yesterday’s session. It was kind of a choppy and volatile session in the pair as we moved between 1.0108 and 1.0175. Oil was higher, moving above $90 a barrel, which helped support the Canadain Dollar, but oil, like stocks and other risk appetite assets turned down in mid NY trading.
USD/JPY – Testing Key Support Trendline
That helped to reverse US yields and helped the greenback to pare some of its losses vs the Yen. The pair remains in a downward consolidation, probing new lows since being rejected at the 84.40 area last week. While we remain inside a sideways range, we now test an upward sloping support trendline that has held for close to 2 months.
http://www.fxtimes.com/
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