Key Overnight Developments

  • Euro Soars to Two-Month High as Debt Fears Fade After FinMin Summit
  • Australian Consumer Confidence Fell Most in Seven Months, Says Westpac

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3343

1.3566

GBPUSD

1.5938

1.6068

The Euro outperformed in overnight trade, rising 0.8 percent to lead the majors against the US Dollar after EU finance ministers pledged to strengthen the safety net for debt-strapped member states following a two-day meeting in Brussels (see below). The British Pound rose 0.4 percent against the greenback. We remain short EURUSD.

Asia Session Highlights

CCY

GMT

EVENT

ACT

EXP

PREV

AUD

23:30

Westpac Consumer Confidence (JAN)

-5.7%

-

0.2%

AUD

23:30

Westpac Consumer Confidence Index (JAN)

104.6

-

111

JPY

23:50

Tertiary Industry Index (MoM) (NOV)

0.6%

0.5%

0.3% (R-)

AUD

0:00

DEWR Skilled Vacancies (MoM) (JAN)

-4.6%

-

-1.0%

JPY

4:00

Tokyo Condominium Sales (YoY) (DEC)

40.8%

-

0.8%

Australian Consumer Confidence slumped 5.7 percent in January according to the Westpac Banking Group, issuing the largest decline in seven months. Westpac chief economist Bill Evans chalked up the decline to expectations that catastrophic floods in Queensland will weaken overall economic growth, delaying the next Reserve Bank of Australia interest rate hike until the second half of 2011.

Euro Session: What to Expect

CCY

GMT

EVENT

EXP

PREV

IMPACT

EUR

9:00

Euro-Zone Current Account n.s.a. (euros) (NOV)

-

-2.3B

Low

EUR

9:00

Euro-Zone Current Account s.a. (euros) (NOV)

-

-9.8B

Low

GBP

9:30

Jobless Claims Change (DEC)

0.0K

-1.2K

High

GBP

9:30

Claimant Count Rate (DEC)

4.5%

4.5%

Medium

GBP

9:30

ILO Unemployment Rate (3M) (NOV)

7.9%

7.9%

Medium

GBP

9:30

Average Weekly Earnings 3M/YoY (NOV)

2.2%

2.2%

Low

GBP

9:30

Weekly Earnings ex Bonus 3M/YoY (NOV)

2.3%

2.3%

Low

EUR

10:00

Euro-Zone Construction Output s.a. (MoM) (NOV)

-

0.0%

Low

EUR

10:00

Euro-Zone Construction Output w.d.a. (YoY) (NOV)

-

-6.8%

Low

UK Jobless Claims figures headline the economic calendar, with economists' forecasts pointing to a flat result in December. The outcome would mean claims fell by a paltry 0.4 percent in the fourth quarter after posting the first increase in a year in the three months through September. This may prove to weigh heavily on the British Pound as signs of deterioration in the labor market weigh against expectations that the Bank of England is on the cusp of raising interest rates after inflation soared in December.

The central bank is trying to reconcile a need to contain price growth with a desire to backstop economic recovery after the more painful elements of the government's austerity program started to take effect in January. BOE Governor Mervyn King and company are under increasing pressure to produce evidence that maintaining an accommodative monetary makes sense despite CPI gains, and a slowdown in hiring may prove to be a key element in making that argument over the months ahead.

Turning to the Continent, the Euro seems to be reveling in Euro Zone officials' pledge to bolster emergency funding capabilities for cash-strapped member states. Although finance ministers shied away from increasing the size of the existing 440 billion euro EFSF bailout fund, they discussed slashing the 200 billion euro reserve buffer to give the facility more cash on-hand at any given moment. The single currency soared to the highest in two months against the US Dollar in overnight trade.

On balance, current optimism seems to be misplaced given the inconclusive nature of what actually emerged following policymakers' two-day summit in Brussels. Perhaps most worrisome were comments from German Finance Minister Wolfgang Schaeuble, who said the more pleasing situation in the financial markets at the moment meant there was no need to take urgent action...in an isolated and over-hasty manner, essentially daring the markets to test the integrity of existing rescue facilities. With plenty of bond auctions and a hefty dollop of debt maturities due before officials' next sit-down in March, traders will get ample opportunities to reapply pressure to periphery borrowing costs, and the single currency may soon find itself on the defensive once again as funding fears resurface.

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