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Risk FX Remains Pressured in Wake of Mixed Italian Auction

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Top Stories

  • Italy sells 7 Billion 10 yr at just below 7%
  • Cable hit hard by end of year insurance payments breaks 1.5400
  • Nikkei down -0.29% Europe flat
  • Oil at $99/bbl
  • Gold slides further to $1548/oz.

Overnight Eco

  • EUR Money Supply ( NOV ) 2.0%
  • EUR German Consumer Price Index (MoM) (DEC P) 0.8%

Event Risk on Tap

  • USD Initial Jobless Claims (DEC 23) expected at 370K
  • USD Continuing Claims (DEC 16)
  • USD Pending Home Sales (MoM) ( NOV ) expected at 1.4%

Price Action

  • USD/JPY at 77.85 as 77.50 holds
  • AUD/USD quiet below 1.0100
  • GBP/USD pushed much lower on insurance payments as 1.5400 gives
  • EUR/USD test 1.2900 again post Italian auction

Currency markets were slightly lower in the wake of Italian 10 year bond auction at the next to last trading day of the year. Italy was able to auction off approximately 7 Billion euro of 10 year bonds at just below the key 7% level in mid-morning European trade today but the reaction in FX was somewhat mixed as the bid to cover ratio was 1.3 and the yield was 6.97%.

Earlier in Asia the EUR/USD hit a fresh low of 1.2875 as traders remained on edge regarding the Italian auction, but today's results suggest that despite deep concerns about investor demand Italy is still able to finance the long end of the yield curve albeit at much more expensive rates. While yesterdays' short term paper saw its yield nearly halved from the peak in November, today's reduction in yields on the longer maturity bonds was decidedly more modest at 60bp from their November highs.

Overall today's Italian auction data shows that the world's third largest bond market remains under stress but may be slowly receding from the panic levels recorded in November. The EUR/USD tested the 1.2900 figure in the aftermath of the news but held support for the time being and if risk flows prove supportive into the North American open the pair could stage a short covering relief rally towards 1.2950. Still, the euro remains dangerously close to its yearly lows of 1.2840 and the shorts could make another concerted run at that level if equities turn negative as the day proceeds.

In UK the calendar was empty but cable took a heart stopping plunge dropping more than 100 points off its Asian session highs after reported end of year sales by insurers. The pair broke below the recent lows of 1.5408 and remained under pressure into the North American open. However, unless sterling sees more technical selling the pair could rebound back to 1.5450 if risk flows pick up.

In North America today the calendar carries the vast majority of event risk for the week including weekly jobless numbers Chicago PMI and Pending home data. Given the improvement in Empire and Philly readings the Chicago number could surprise to the upside as well which should prove positive for risk and could spur some short covering in deeply oversold high beta currencies.

FX Upcoming

Currency GMT EST Release Expected Prior
USD 13:30 8:30 Initial Jobless Claims (DEC 23) 370K 364K
USD 13:30 8:30 Continuing Claims (DEC 16) 3.564M
USD 15:00 10:00 Pending Home Sales (MoM) ( NOV ) 1.4% 10.4%

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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