Key Overnight Developments

  • US Dollar Sold as Earnings Outlook Weights on US Recovery Bets
  • UK Consumer Confidence Gains Most in 15 Months, House Prices Rise

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3258

1.3439

GBPUSD

1.5862

1.6074

The Euro and the British Pound added as much as 0.6 and 0.5 percent respectively against the US Dollar as the greenback came under broad-based selling pressure in Asian trade (see below). We remain short EURUSD.

Asia Session Highlights

CCY

GMT

EVENT

ACT

EXP

PREV

NZD

21:00

REINZ House Sales (YoY) (DEC)

-11.3%

-

-15.2%

NZD

21:00

REINZ Housing Price Index (MoM) (DEC)

-0.6%

-

1.9%

NZD

21:00

REINZ Housing Price Index (DEC)

3201.6

-

3221.5

GBP

0:01

Nationwide Consumer Confidence (DEC)

53

44

45

GBP

0:01

RICS House Price Balance (DEC)

-39%

-44%

-44%

NZD

2:00

Non Resident Bond Holdings (DEC)

62.1%

-

64.6%

CNY

2:00

Actual Foreign Direct Investment (YoY) (DEC)

15.6%

11.2%

38.2%

JPY

4:30

Industrial Production (MoM) (NOV F)

1.0%

-

1.0%

JPY

4:30

Industrial Production (YoY) (NOV F)

5.8%

-

5.8%

JPY

4:30

Capacity Utilization (MoM) (NOV F)

1.6%

-

-2.3%

JPY

5:30

Nationwide Department Sales (YoY) (DEC)

-1.5%

-

-0.5%

JPY

5:30

Tokyo Department Sales (YoY) (DEC)

-0.3%

-

0.3%

JPY

6:00

Machine Tool Orders (YoY) (DEC F)

64.0%

-

63.5%

The US Dollar sold off in overnight trade, down as much as 0.4 percent on average against its top counterparts ahead of tomorrow's start of the corporate earnings season, with five out of eight S&P 500 companies due to publish results expected to show that earnings declined over the reporting period from the previous quarter. As we discussed in our weekly fundamental trends monitor, a light US data calendar this week puts the spotlight on earnings as an alternative gauge of the recoveryin the world's top economy, with disappointing outcomes set to weigh against the notable pickup in growth indicators over recent weeks. This in turn may dissipate hopes that the Federal Reserve will abandon quantitative easing after the current round expires or even reduce its scope before then, weighing on the greenback.

UK Consumer Confidence unexpectedly improved in December, yielding the first increase in four months and the largest since September 2009 according to the Nationwide Building Society. Housing market data also topped forecasts, with the Royal Institute of Chartered Surveyors showing that the margin by which the number of real estate agents reporting price declines outnumbered those showing increases narrowed for the second month in December.

Euro Session: What to Expect

CCY

GMT

EVENT

EXP

PREV

IMPACT

GBP

9:30

DCLG UK House Prices (YoY) (NOV)

-

5.5%

Low

GBP

9:30

Consumer Price Index (MoM) (DEC)

0.7%

0.4%

Medium

GBP

9:30

Consumer Price Index (YoY) (DEC)

3.4%

3.3%

High

GBP

9:30

Core Consumer Price Index (YoY) (DEC)

2.7%

2.7%

Low

GBP

9:30

Retail Price Index (DEC)

228.4

226.8

Low

GBP

9:30

Retail Price Index (MoM) (DEC)

0.7%

0.4%

Low

GBP

9:30

Retail Price Index (YoY) (DEC)

4.8%

4.7%

Low

GBP

9:30

Retail Price Index ex Mort Int (YoY) (DEC)

4.8%

4.7%

Low

EUR

10:00

Italian Current Account (euros) (NOV)

-

-2580M

Low

EUR

10:00

German ZEW Survey (Economic Sentiment) (JAN)

7.0

4.3

Medium

EUR

10:00

German ZEW Survey (Current Situation) (JAN)

83.7

82.6

Medium

EUR

10:00

Euro-Zone ZEW Survey (Economic Sentiment) (JAN)

16.6

15.5

Medium

Comments emerging from a meeting of EU finance ministers in Brussels - now expanded to representatives of all 27 member states from yesterday's Euro Zone only sit-down - remains a focal point as traders increasingly suspect that Germany will stonewall the creation of any concrete agreement at least until late February to early March. As we discussed in detail yesterday, such an outcome may prove to weigh heavily on the Euro after last week's rhetoric from policymakers built up expectations for the emergence of a comprehensive solution to the region's debt crisis at the summit.

On the data front, January's German ZEW Survey of investor confidence is expected to show that sentiment improved for the third consecutive month. The significance of the outcome for price action seems limited however considering it offers very little by way of new insight. Indeed, German outperformance within the Euro Zone is old news at this point, with the release attesting to - first and foremost - the increasing pressure on the European Central Bank to find an elusive balance between EZ member states' rapidly diverging policy needs as inflation moves north of the 2 percent target level.

Finally, UK Consumer Prices Index figures are expected to show the annual inflation rate rose to 3.4 percent, the highest in seven months. The release will underscore the precarious position of the Bank of England as it attempts to reconcile stubbornly high price growth with the need to backstop economic recovery amid the onset of the more painful elements of the government's austerity measures. On balance, traders seem suspect that a rate hike is becoming increasingly unavoidable, with a Credit Suisse gauge tracking the priced-in probability of an increase at the next policy meeting at the highest since August 2008 (albeit at just 20 percent).

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