FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The European Union Summit opens today as Eurozone leaders prepare to save their currency but it appears that some degree of expectations management is already underway, largely on what financial firepower can be deployed. The ECB has not telegraphed any aggressive steps, and we expect them to try to use as much conventional firepower as possible. The ECB cannot judge what can be agreed upon on Friday, but Draghi will be meeting Merkel and Sarkozy after today’s policy decision. At the very least though, knowing potential market reaction to ‘nothing at all’, the ECB would have been given the relevant assurances, and some lip service can be paid. All in all, preservation of options is still as important as acting decisively from the ECB’s perspective. On the conventional policy side, we expect interest rates to be cut by 25bp, with another 50bp in follow-up cuts next year. The political establishment, meanwhile, continue to work towards the ‘fiscal compact’ desired and we expect more headlines on the matter throughout the next two days. Meanwhile, the Bank of England will also hold its policy decision, where we expect no change in either the base rate or the asset purchase programme, though the current prognosis for the UK economy suggests the BoE may be called upon to do more. In other news, the RBNZ kept its overnight cash rate unchanged at 2.50%. In Australia, unemployment figures were unexpectedly weak as jobs fell by 6.3k and the unemployment rate increased to 5.3%. EURUSD traded 1.3393-1.3421 and USDJPY 77.61-77.69.
AUD
Unemployment figures were weak. Over 6,000 jobs were lost and the unemployment rate increased to 5.3%. However, our economists note that overall, the tick up of the unemployment rate was a slight ‘negative’ surprise on the day, albeit basically flat over recent months. Meanwhile, jobs growth are showing a flat trend, and lacking to follow leading indicators of employment, which has been suggesting a trough at a higher pace.
We continue to look for one more 25bp RBA cut in February.
CHF
The Swiss Economics and Finance Minister Widmer-Schlumpf said that Switzerland is prepared for ‘flight to franc’ if Eurozone problems increase. She said that both capital controls and negative rates are still under discussion. The comments triggered another rise in EURCHF, which suits SNB policy purposes comfortably.
GBP
The Bank of England will decide on rates and the asset purchase target. We do not expect any changes.
The NIESR estimate that UK economic growth slowed to 0.3% in the three months to November; says GDP won’t surpass 2008 levels until 2013, and that the data support the case for more Bank of England stimulus.
NZD
The RBNZ kept rates on hold at 2.50% at their policy meeting, in line with expectations. The central bank said policy would remain supportive for sometime, and it would be prudent to hold the cash rate due to uncertain global conditions and modest local demand. The RBNZ also lowered their growth forecasts for 2012 and 2013, but also warned that current market pricing is for a more marked downturn than the RBNZ is seeing.
Q3 manufacturing sales dropped by -1.4% q/q, the second quarterly drop in row, 7 of 13 industries reported declines. However, the Nov QV residential property index was up +1.7% y/y.
TECHNICAL OUTLOOK at 0800 GMT (EDT +0400)
EURGBP breaks 0.8519.
EURUSD BEARISH Focus is on 1.3334, a break below which would open 1.3259. Resistance is at 1.3487.
USDJPY BULLISH Resistance is at 78.11 ahead of 78.29. Key support lies at 77.30.
GBPUSD NEUTRAL Trend is sideways; support lies at 1.5561, a decline through which would open 1.5526. Resistance is at 1.5726 ahead of 1.5780.
USDCHF BULLISH Key resistance is at 0.9331; a break above which would open 0.9401 next. Support lies at 0.9165.
AUDUSD BULLISH Clearance of 1.0328 would open 1.0447. Support lies at 1.0151.
USDCAD BEARISH Support lies at 1.0041 ahead of 0.9975. Resistance is at 1.0223.
EURCHF BULLISH Pressure is on 1.2474; a break above which would be a key bullish event and open 1.2646. Support lies at 1.2322.
EURGBP BEARISH Break below 0.8519 has opened 0.8486 ahead of 0.8456 the 61.8% retrace of the rally from 0.8068 to 0.9084. Resistance is at 0.8620.
EURJPY NEUTRAL Support lies at 103.34 ahead of 102.49 while resistance is at 105.00 and then 105.70.
SCHEDULE
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