Euro Trades Higher Ahead of ECB Tender Offer

Shutterstock photo

Shutterstock photo

Top Stories

  • Markets await LTRO uptake risk bid into Europe
  • UK PSNB lower than forecast debt as % of GDP highest on record
  • Nikkei up 1.48% Europe up .96%
  • Oil at $98/bbl
  • Gold at $1634/oz.

Overnight Eco

  • JPY Trade Balance ( NOV )
  • NZD Current Account Balance (3Q)
  • NZD Credit Card Spending SA (MoM) ( NOV )
  • EUR German GfK Consumer Confidence Survey (JAN)

Event Risk on Tap

  • USD Existing Home Sales (MoM) ( NOV ) expected at 1.1%
  • CAD Retail Sales (MoM) (OCT)
  • CAD Retail Sales Less Autos (MoM) (OCT)

Price Action

  • USD/JPY trades to 77.70 post BOJ meeting
  • AUD/USD rallies to 1.0200
  • GBP/USD tops out at 1.5750 post BOE minutes
  • EUR/USD rallies to 1.3150 ahead of LTRO

Risk currencies continued their advance in early Europe trade today ahead of the ECB 3 year tender offer that many in the market viewed as stealth form of QE. The EUR/USD rose to a high of 1.3155 and Aussie rallied to 1.0200 before meeting some profit taking in mid- morning London trade. Most analysts expected so see LTRO bids in the range of 250-350B euros from European banks allowing them o access capital at 1% which could in turn be invested into higher yielding sovereign bonds in the region.

This carry trade strategy which has been employed with some success by the Fed after the Lehman bankruptcy crisis can provide several benefits to the financial system. By allowing banks to book easy profits on the spread between the cost of LTRO and the yield on sovereign debt it helps to recapitalize the fragile European financial sector - task made doubly important by the impending increase in Basel capital requirements. In addition by recycling the LTRO funds into sovereign debt European banks provide a release valve the EZ credit markets lowering debt service costs for the periphery economies.

In Asia today The BOJ left its benchmark rate unchanged between 0.0% and 0.1% but warned that the country's recovery has stalled as business sentiment deteriorated in the wake of weaker export demand. In the post meeting press conference BOJ Governor Masaaki Shirakawa noted that the central bank will continue to pursue policy with an eye on price and financial stability next year emphasizing the need to reconstruct Japan's fiscal structure.

Mr. Shirakawa also stated that declines in fiscal credibility would be a huge shock to economy indicating that the central bank does not plan on dramatically expanding any of its monetary stimulus programs for the foreseeable future. Currently the BOJ has a modest QE program in place whose impact has been limited at best and clearly Japanese monetary authorities have no appetite for further policy initiatives for the time being.

As we noted earlier,"With Japanese policymakers continuing to remain passive save for an occasional round of intervention, the price action in the pair will be driven by developments on this side of the Pacific. Today's US Existing Homes report which may surprise to the upside given yesterday's better housing data could provide a boost for the pair later in the day and push back towards the 78.00 figure. "

FX Upcoming

Currency GMT EST Release Expected Prior
USD 15:00 10:00 Existing Home Sales (MoM) ( NOV ) 1.1% 1.4%
CAD 14:30 9:30 Retail Sales (MoM) (OCT)
CAD 14:30 9:30 Retail Sales Less Autos (MoM) (OCT)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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