Morning | Forex Blog

March 26, 2012

A EUR Range Play?

Filed under: OANDA News — Tags: aud, cad, chf, chinese, dean's fx, euro, expected-at-109, gbp, german, jpy, market pulse, morning, play-the-range, prospective, recovery — admin @ 4:41 am

It seems market participants are grappling between the desire to pick up some bargains following last weeks heavy equity declines and concerns about global economic growth. Despite some better news over the weekend that Germany does not intend to step in the way of the EFSF and EMS bailout funds to be combined to boost the regions firewall facility, it was Monti’s comments about Spanish concerns that could reignite Europe’s debt crisis has the EUR trading on the back foot after surprisingly stronger German data this morning.

German ifo index for March came in better than expected at 109.8. It was the fifth consecutive increase, and on the face of it, points to a modest increase in activity. However, “The near term risks remain skewed to the downside as oil prices might weigh on business profits and external demand remains sluggish, especially from other main euro-zone countries that suffer from a technical recession.” The markets initial reaction was to see a jump in EUR outright to just short of Asian overnight highs (1.3285). It was here that fresh intraday shorts took advantage of the spike.

Again, the market has lacked the impetus to breach the 1.33 option barrier trigger point. The unwillingness of many to make any more bold moves after last weeks disappointing US Industrial production numbers and Chinese and Euro-zone PMI’s has allowed Middle Eastern names to push the the single unit to test its daily low just below 1.32. Many this morning have been playing the range, pulling bids back, joining the stop-losses close to these levels while others have been gradually taking back their quick post ifo profit. The technical analysts will tell you that true support comes in around 1.3170 (10-day moving average), a region where there is sure to be stops below. Option expiries on the topside at 1.3250 will again bring in some Middle eastern selling names.

Markets focus by week’s end will be twofold. Ahead of the Euro group meeting, Germany is reportedly ready to allow a temporary increase in the overall euro-zone bailout fund. The compromise would allow the already existing commitments of the EFSF to run in parallel with the full lending capacity of the prospective ESM, boosting overall size available to about +€700b. If this plays out accordingly, the market can expect some relief. Last week’s flash estimate of Chinese manufacturing PMI suggests that the official PMI (at the end of the week) will likely fall in March. However, with the Chinese New Year holidays being in February for four out of the past five years, historically the official PMI tends to rise by +2.9 points in March from February. A result above 50 and the market should expect some Asian currency relief. So far, the market has only the enthusiasm to play the range.

Other Links:
Quarter-end pushes USD repricing

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March 23, 2012

EUR Dictated by Option Demands

Filed under: OANDA News — Tags: a-support-and, a-using-the, above-the-highs, aud, credit-rating, gbp, market, morning, north-america, present-on-dips, protection, size, take-the-unused — admin @ 4:35 am

The EUR bears certainly got the short end of the stick after the weaker global PMI releases. In a market where you would expect the single currency to underperform more so, has seen the rumored bottom feeders from Russia support and buy in size. Their presence, or who ever, has put off any technical attempts for the market to trigger stop losses below 1.3150 with conviction yesterday. This morning, the EUR continues to extend it gains, tackling 1.33, as more stops, on the top side now, get taken out in European trade. With China using the CNY fix and rumors of an imminent RRR cut in the overnight session had many changing their trading tact midstream.

Vanilla currency options are strangling some of the G7 currency ranges. Sovereign and semiofficial supply will look to slow the EUR’s upside. Elevation does not suite the single currency as it remains vulnerable in lofty territory. Bearish action over the past two sessions has seen the technical charts work off an overbought bias. Aggressive buyers are ever present on dips and will be armed with their tight stops. Fast money interest in EUR/JPY’s topside has being one of the biggest supports in this mornings European action. Protection of the 1.33 barrier has capped the outright sessions topside for now, allowing the currency to skulk amid its initial failure. A break above the highs will generate a fresher bullish follow through for the chartist in us.

Increasing chatter is putting further emphasis on month-end requirements and what we are supposed to expect. The meeting of quarter and month-end action tends to muddy the FX market and destroy many traders playbook and this one is no different. The recent US asset classes performance is expected to see US pension funds have a significant rebalancing need in month and quarter-end, especially given the size of the equity market rally and fixed income sell off this quarter. Logic and history would also mean significant month-end forex flow. Support for treasury’s and selling of equities would only further “muddy the waters in determining whether we have moved into a new FX paradigm whereby risk sentiment is on the up.”

For now, we have the protection of options dominating intraday movements just like EUR’s feeble 1.33 attempt this morning. We still have time, North America could reload and give it a go ahead of its new home sales data release. Thus far, February housing numbers have generally been moderately weaker than expected, with the notable exception of building permits.

Other Links:
Credit Rating Infographic

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March 20, 2012

Bernanke to derail the EUR trend?

Filed under: OANDA News — Tags: a-buyer-ahead, a-soft-landing, amongst-the-ten, business, eur, european, from-the-script, market monitor, morning, usd — admin @ 4:34 am

The mighty, somewhat subjective dollar, has managed to claw back some of its recent losses in the overnight session. Until now, the buck has been trading close to its weekly lows outright on speculation that the Fed Chair Ben Bernanke will reiterate today that a slow US recovery warrants near-zero interest rates. The market does not expect the Fed to change its recent rhetoric, policy members are going to still characterize the recovery as somewhat tepid. Bernanke is to deliver a speech at George Washington Business school later this morning and it’s here that we can expect the markets to be reacting to any hint that additional asset purchases remain possible.

The ‘reserve’ currency of choice has been the third worst performing currency amongst the ten most developed currencies in the past week. Unlike the EUR, which has managed to climb close to +0.7%. The dollar has gotten its lift on the back of Asian equities underperforming due to China raising gas and diesel prices by the most in two-years (+7%). This is the second hike in two-months, amid rising global crude prices. Yesterday, New York Fed Dudley stated that signs that the US economy improving “does not dispel risks that include rising gas prices and a weakened housing market.” Investors are beginning to question even more if a Chinese slowdown will happen and if it will be a hard landing or a soft landing? Earlier this month, Premier Wen Jiabao announced an economic growth target of +7.5% for this year, down from the ever present +8% that the market had come accustomed to over the past seven-years. With their economy beginning to shift focus more onto consumers and away from the large infrastructure projects may worry investors that the economy is slowing even further.

It seems that official Asian dollar buying has managed to test the optioned supported 1.32 ahead of the US open. Scattered stops in the upper high 1.31’s should allow the dollar to gain even more ground. However, the market is a buyer ahead of the 30-day moving average, keeping alive the bias to the topside. The technical short term target would be an eventual break above yesterday’s high of 1.3266 to this months high of 1.3291. Despite the upward bias, the market again seems happy selling into the these rallies at the moment.

Contributing to the EUR strength of late has been the German 10-year Bund yield, which are on the rise as safe haven buying stemming from Greek default fears tapers. It seems that German debt is “playing catch-up” after a lag last week, allowing the EUR to follow suit. A surprise to many is that money is beginning to flow out of German debt to other European countries. How long is this to last? Last week’s dollar gains, in large part on rising US rates and better economic data, may have left the “buck” overbought, both price wise and net spec IMM position wise and it’s now that EUR bears are paying the piper. Fed rhetoric continues to remind the market that they are no where close to raising interest rates. Helicopter Ben will not stray from the script either later this morning. US yield curve manipulation is unlikely to end quickly.

For now the market seems to want to continue, both fundamentally and technically, to unwind the “flight to quality” trade that was so much in vogue in Q4. The reasons for many of the EUR shorts are beginning to dissipate, which has the weak EUR short rather nervous. The spotlight is back on US housing data. This morning, housing starts and building permits will be the first out of three housing indicators on this week’s data calendar. Will stronger data prove supportive for the USD against the JPY and the EUR or are we to continue the EUR strength trend?

Other Links:
Greek Debt Woes Far from Solved

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March 19, 2012

March Dollar Madness on Dudley?

Filed under: OANDA News — Tags: chf, currency, dean's fx, dollar, five-month-high, japan, morning, recent, region, surprise-easing, versus-the-yen — admin @ 4:04 am

Last week, the dollar succumbed to profit taking from Fed Evans dovish overtones on Friday. This weeks direction will be set early by New York Fed Dudley’s speech later this morning. The market will be focusing on whether he will be able to talk down the recent rise in treasury yields (nine consecutive days-10’s at 2.29% +30bps) and whether he “reignites expectations that another round of quantitative easing could be unleashed in the US.” Recent strong data in the region has allowed the market to pare back some of their strong views on QE3, believing that the US is naturally gaining traction. However, any further dovish overtones will only reinforce dollar negativity.

The recent surge in US Treasury yields has made the greenback less appealing as a funding currency versus the yen. The yen’s status as the currency of choice in funding “carry” trades was solidified last month after a surprise easing by the BoJ. It’s not surprising to see the currency trade on the back foot in the overnight session with the EUR touching a five-month high after Merkel indicated that European officials have discussed combining the Euro-areas bailout funds to reinforce the region’s financial firewall. The yen outright has traded near an 11-month low after regional equities extended last week’s rally, damping demand for safe haven assets.

EUR/JPY’s failure to add to the new five-month high seems to be adding some weight to the EUR outright this morning as it trades off its overnight highs. The market remains long the dollar and technically we should expect the currency to struggle ahead of 1.32 in the short-run as more offers again seem to be protecting that psychological level.

However, layers of support for the single unit have formed just under 1.31 and above last Friday’s low. The market it seems prefers to be buying dips for an eventual break above the 30-day moving average (1.3217). Perhaps Dudley’s speech will be the igniter?

Many believe that the chances of EUR weakness further declined after the ECB’s second LTRO and the second bailout package for Greece. This has certainly put the weaker EUR shorts under pressure and it’s these positions that should elevate volatility this week. Longer term bears remain happy at current levels and again some are looking for better levels to recycle their EUR’s. Large LTRO’s are not the same as QE, but it seems they have triggered the ‘carry trade’ after narrowing of bond spreads.

Even though the market is heavily short yen, especially after last month surprise BoJ move, the currency is due for some respite, without changing over all market sentiment. March, historically is the month that attracts some Japanese corporate demand for their domestic currency ahead of Japan’s business year-end at the end of the month. Do not be surprised if weak shorts are squeezed.

Other Links:
Greek Debt Woes Far from Solved

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March 2, 2012

EUR Only Grinds Lower

Filed under: OANDA News — Tags: a-decent-rally, aud, cad, gbp, jpy, morning, remains-on-the, usd, using-the-short, week — admin @ 4:09 am

EUR remains on the back foot as we round off the week and is likely to stay on the defensive after this week’s massive cash injection by the ECB. The take-up by 800 banks of just over half-a-trillion EUR’s of ‘cheap’ cash (LTRO), an alternative form of QE, should be making it attractive to use the single currency as a funding currency to buy higher yielding assets.

Recent price action is not aggressively pushing the EUR lower versus its emerging market compatriots just yet. Why not? The market does not seem to have the appetite to buy into the emerging currency crosses at these levels because positioning has already seen the regional pairs have a decent rally year to date outright versus the EUR and because of central bank actions. Monetary authorities have been busy slowing the appreciation of their own domestic currencies.

The ‘killjoy’ in this risk scenario may be the reemergence of higher oil prices and its effect on global growth. However and until then, higher crude prices continue to weigh on the JPY, as Japanese importers’ demand for the dollar has been consistently steady after the shutdown of nuclear reactors in the country. The reasonably positive risk environment maintains the JPY, just like the EUR, as a preferred funding vehicle.

Investors have been using the short EUR/CAD trade to take advantage of rising oil prices and increased risk sentiment. With a little bit of homework, investors are able to apply partial or full hedging opportunities for varying degrees of risk trades. In this situation, CAD as an interest rate commodity sensitive currency, it’s preferable to own the CAD on the cross rather than outright. One would describe it as a ‘straight’ trade encompassing the debt crisis in the Euro-zone and the rise of commodity prices. Outright against the dollar, currently the currency is guilty by association, especially with just under +70% of Canadian exports heading south of the border. If Canadian GDP data for Q4 later this morning is positive, then expect CAD to rise further. If the data disappoints, then CAD will suffer, but not so much as long as oil remains better bid.

Not helping the EUR this morning, pushing it to new weekly lows, was the German real seasonally adjusted retail sales falling sharply in January. The -1.6% decrease was much greater than market anticipation of a +0.3% increase. Perhaps a saving grace is that forward looking indicators point to rising consumer confidence among Germans, which could bode well for future retail sales. Again, expect the market to focus on oil prices, as rising oil prices tend to keep consumption in check.

From the above chart, on the week EUR bears have been paring back some of their shorts with some believing that close to a three cent pull back is worth it as we head into another event laden next week, dominated by monetary policy meetings and employment data.

Other Links:
China Sells US Treasuries

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February 7, 2012

EUR Pegged to be Lower?

Filed under: OANDA News — Tags: a-decent-amount, aud, chf, dean's fx, europe, gbp, goes-on-general, market monitor, morning, prime-minister — admin @ 4:29 am

Market surprises seem to be coming in three’s this morning. EUR is still in demand and is beginning to encroach on price tipping points that has more than a few weaker shorts worried. Last night, the RBA stuck to its guns and kept rates unchanged at +4.25%, resulting in the market being flat footed and the currency spiking to print 1.0815. Despite being close to even odds of nothing doing down under, market reaction indicates the breath of Governor Stevens surprise. Finally Yen, it has weakened for the third time in four-days outright and against the EUR after government data showed Japan carried out so-called “stealth intervention” to weaken the currency in November. More rhetoric from Japans Finance Minister Azumi stating that he will not rule out any options to curb the currency’s appreciation certainly has the bears on the back foot this morning. With macro dollar bids below and a decent amount of offers near yesterdays peaks could have the ‘newer’ JPY range again lacking impetus and inspiration.

Merkel indicating that the EU would not allow a ‘destabilizing Greek bankruptcy to occur’ is providing tepid support for the single currency. Sovereign and real money offers into the upper 1.31’s are again being tested. Larger stops are placed above the figure and barriers into 1.3250. Greek headlines will again dominate intraday activity, whilst fresh failures at this upper tier will generate short term-fast money exchanges, last seen after last Friday’s stellar NFP report.

Fitch ratings has reiterated its Greek concerns this morning, believing that the Euro-zone sovereign debt crisis is likely to be “prolonged,” and that severe “contagion” is likely across Europe if bailout negotiations in Greece fail. Officials continue to struggle to make headway on austerity measures, which are detrimental in obtaining the next installment of the bailout package before next months bond maturities. Prime Minister Papademos and opposition leaders are back at the table while the country goes on general strike today. The divergence within the political arena has many observers increasing their estimates of the likelihood that Greece will eventually exit from the EUR. Creditors cannot be allowed to continue to provide further support if Greece remains non compliant to its debt program.

A disappointing headline print for German Industrial Production is bearing pressure down on the single currency. IP in Europe’s largest economy fell sharply in December (-2.9%) with all categories recording a fall. In quarterly adjusted terms IP fell by -1.9% in Q4. However, other survey indicators point to the pace of output picking up this year. For now, it’s just another excuse to sell!

Other Links:
US Curve flatter despite a bid EUR

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January 16, 2012

EUR move Exaggerated?

Filed under: OANDA News — Tags: aud, currency, dean's fx, efsf, eur, french, gbp, greece, jpy, market, market pulse, morning, portugal, then-it-will, with-the-french — admin @ 4:27 am

The market needs an extended break to digest what was dumped on her late Friday and Martin Luther King Day in the US gives us that opportunity. The decision by S&P to downgrade the sovereign ratings of nine euro-zone nations continues to weight on risk sentiment across all asset classes. Thus far, the market believes that the one notch downgrade in France’s rating to AA+ should not snowball into widespread selling of French product. That theory has been tested this morning with the French Treasury coming to market with +EUR8.7b of 84-day-357-day T-bills. The issues drew strong investor demand in Frances first bill auction of 2012 with short-term yields rising only slightly from record lows reached in its last auction of 2011.

The biggest fallout from the rating agency’s actions will be the potential effect it could have on the EFSF. If the EFSF rating is downgraded, analysts estimate that the lending capacity would be reduced to +EUR150b. The German MoF is “in no doubt that the EFSF can fulfill tasks with the current volume.” The S&P’s chop has left Portugal with a rating of BB negative outlook, and has taken the country from a pool of investment grade assets to speculative grade, joining Greece and Cyprus. It seems logical to assume that if Greece cannot pull-off another PSI and move closer to default, then it will only be matter of time before Portugal is on ‘her shoulder.’ Policy makers unwilling to commit further funds are going to have a difficult time convincing investors that PSI for Greece will be the last.

Big picture, unless Draghi and company change its tune on QE or Merkel her views on Eurobonds then it will not be long before the market again is talking about another bailout for Portugal and an earlier focus on that country’s PSI situation.

FX moves seem to belie sovereign yields at the moment. Despite rates punching above their weight, there is a perception that the EUR has weakened too much following the rating announcements last week. The downgrades do not have much of a surprise element in it and the EUR has still managed to drop 1.5-big figures. In times past, and with FX anticipating a downgrade, the single currency typically weakened -0.3%. Is this currency move exaggerated? Perhaps it is the new norm to be seen across all asset classes?

Again, this morning selling EUR’s on rallies is preferred, giving the market a bearish consistency in all asset classes. With the US on holiday and in some corners a perception of an oversold market should lead to some further consolidation in the currency markets short term.

Other Links:
Worried about the Exit of Capital from China?

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January 12, 2012

Will the US embrace EURs new found confidence?

Filed under: OANDA News — Tags: aud, data, dean's fx, gbp, greece, morning, prime-minister, psychological, towards-the-ecb, treasury-yields, weeks — admin @ 4:19 am

The EUR’s low (1.2663) print of yesterday is but a distant memory in this monotonous trading range. Especially after this mornings successfully strong Spanish bond and Italian bill auction. Until know, the market had been fueled by French rating rumor troubles over the past couple of trading sessions. All denied of course, however, the half hearted participation rate has made for a number of dull trading days. This weeks focus really starts today with the highly anticipated Spanish and Italian issues. The market gets to see how interested investors are in investing in theses two economies with so much to lose. Will Premier Monti and Prime Minister Rajoy get the recognition for their austerity efforts?

Thus far, the yield on the Italian 10-year bond has remained near the psychological +7% level that prompted Greece, Ireland and Portugal to seek bailouts. In contrast, Spanish debt has fared better with the 10-year issue hovering close to the +5% watermark. Despite a worse than expected outcome for Spain’s 2011 fiscal deficit and ongoing concerns over banks’ bad debts, Spanish yields have improved on stronger sentiment across the region. This has been proven this morning with Spain delivering a strong auction.

Spanish treasury successfully auctioned +EUR9.98b of government bonds, double the amount it had planned. The average yield in the auction came in below secondary market levels, a sign of strong demand. This has also helped to push German Bunds down to healthier levels, encouraging the exiting of some risk averse positions. Not to be left out in the cold, Italy sold 1-year bills at +2.735%, vs. +5.952% on December 12. In total, Italy successfully sold +EUR12b T-bills, meeting its target, and at the same time seeing its borrowing costs plunge in the country’s first debt sale of the year and in the process helping sentiment give a lift to the single currency. On the data front, Italy is also helping the EUR to test this weeks highs. This morning’s Industrial Production release was slightly higher (+0.3% vs. -0.5% seasonally adjusted) than expected in November, and this despite the euro-zone third largest economy having already entered a recession. Its not surprising that the rise was led by the energy sector.

Market focus now turns towards the ECB. Policy makers are not expected to announce new measures or easing beyond what was launched last month. Some of the changes to collateral requirements are not yet in effect, its probably prudent for Draghi and company to at least assess the impact of the next three-year LTRO (long term refinancing operation) before adding new measures. Will North America embrace EUR’s new found confidence?

Other Links:
Bunds and Treasury Yields Narrow

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January 10, 2012

Forex Market Outlook 1/10/12

Filed under: Forex News — Tags: a-down-market, a-hard-time, a-major-driver, a-much-better, ability, aud, china, crisis, euro, growth-as-china, italy, morning, party, top stories — admin @ 6:47 am

Traders will have a hard time trying to find a down market today with the exception of JPY and USD as the market has taken a decidedly pro-risk tone this morning, which is a welcome relief to some. Both global stocks and commodities are trading much higher to start the US session. There are a few different factors driving this sentiment and it is this confluence that is driving markets higher.

So what’s going on this morning? For starters, the market is regaining confidence in the Euro zone and the ability of its leaders to tackle the debt crisis. 2012 is likely going to be a different year for EU leaders who appear to be out in front of the crisis unlike last year when they dragged their feet and let the politics play out in public forums which erased any credibility they had maintained up to that point. Yesterday’s meeting between Sarkozy and Merkel was viewed as positive and the news that they may accelerate payments to the bailout fund is welcome.

Today Merkel is meeting with Lagarde of the IMF and there is renewed hope that they will further the mission of tackling the debt crisis. So far they are winning the PR battle and have kept the bond vigilantes away for now, though there is a lot of bond issuances due out over the course of the next month so they are not out of the woods just yet. But yields are coming down for EU debt, though Italy’s 10-year is still above 7% which is problematic. Another good piece of news is that Fitch stated they would not downgrade France so long as the debt crisis doesn’t worsen.

However, news about the current Greek debt crisis has been met with mixed reviews. It now looks like bondholders may have to take a haircut of greater than 50% which could bring some noise to the markets as investors balk and would prefer default in order to be paid out on their CDS. This will be the story to watch going forward, as well as if this has any impact on future investment in other sovereign debt issues.

News out of the Euro zone showed that French Industrial Production figures came in better than expected showing positive gains vs. expected declines across the board.

In the UK, home prices fell less than expected and the market is looking forward to Thursday’s rate decision where the BOE is still expected to make no change.

Today is a slow day for economic data but one of the big drivers of the markets will be US corporate stock earnings. Last night earnings season kicked often with Alcoa (AA) posting better than expected results and a host of other equities look to beat expectations despite slowing profit growth. The correlative effect of higher stock prices still holds some weight and is a major driver of risk sentiment.

Another driver of risk sentiment is oil prices, rightly or wrongly. I have always contended that higher oil prices should be bad for risk sentiment and not contributing to risk appetite but I am just one voice out of many. Oil has been higher this morning to $103, mainly because of Iran’s sabre-rattling, which is threatening the supply of oil to the global market.

Overnight, China reported a much better than expected trade surplus as reduced imports pushed the balance higher as exports remained steady. The trade surplus of nearly 16B was almost twice what was expected so China needs to step up their importing if they don’t want to continue to draw ire over their currency peg.

There is no news of any significance due out in the US today but there is some Fed speak later today that could have a market impact, though unlikely. In today’s Twitter age, the Fed folks have really learned not to speak out of school and their remarks are carefully vetted ahead of time. So they will stick to the party line and will go un-noticed.

If things continue on this trajectory, then we could see further risk appetite if corporate earnings continue to be positive. The private sector appears to be in good shape at this point but government health is likely to be the topic going forward. 2012 is an election year so expect the powers that be to try to pull out all of the stops to juice the numbers to make it seem like they have been doing a good job.

Despite our ability to persevere, I can tell you that things could be a whole lot better. Don’t fall for the counter-factual argument that things could be worse, because the opposite also holds true, that things could be better. If business gains confidence from the government, not from the economic results, then we could be on the path to recovery.

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January 6, 2012

Forex Market Outlook 1/6/12

Filed under: Forex News — Tags: a-lot-higher-, a-reports-here, expect-as-risk, markets, might-normally, morning, spain, whisper, whisper-number — admin @ 6:16 am

Today is jobs Friday with the all-important Non-Farm Payrolls report due out later this morning. The official expectation is that we will see an addition of 155K jobs, though based on recent data releases, I’m hearing that the “whisper number” may be a lot higher.

For those of you unfamiliar with the “whisper number”, it is essentially a figure that market insiders are expecting which is usually higher than the official expectations. This usually occurs because of new information that comes out between when the estimates are released and the actual release of the figure. Yesterday’s ADP report came in much better than expected and other economic data reports here in the US have been positive, creating a hope that this figure will blow out expectations much like the ADP number.

What I am hearing is that the whisper number for this report is 185K, with some expecting a print above 200K. Why is this important? Because the markets are a discounting mechanism so a lot of these expectations are already baked into the cake. So sometimes a better than expected number might not be good enough if it doesn’t eclipse the whisper number. For a example, a print of 165K would be 10K better than the expectation, but 20K below the whisper so the initial reaction could be very positive, but then we could see a quick reversal and the markets sell-off. This is often referred to as a “bull trap” and can create heavy volatility, which is often what we see after these releases anyway.

So how does one trade this figure? My advice is usually to wait until after the number is released and then wait for either a pullback from the initial move to get in with the new trend, or wait for a reversal and take the opposite position once the initial frenzy is done. Easier said then done, I know, but getting into positions ahead of the figure is just gambling. The example I used above is just one possible scenario and by no means is a recommendation for action if those should be the number that are released.

So what else has been happening in the markets this morning? Well the news continues to worsen in the Euro zone though thankfully it is not related to the debt crisis directly. Unfortunately though, the news is that the fundamental data is getting worse pointing to a recession in Europe. Economic sentiment figures are at a two-year low, and German factory orders came in worse than expected, showing a decline of 4.3% vs. an expected decline of 1.2%. In addition, Euro zone retail sales figures also came in lower than expected, posting a decline of 2.5% vs. an expected decline of .9%. The unemployment rate came in as expected at 10.3%. Not good at all.

This comes ahead of next week’s meeting between Merkel and Sarkozy on Jan 9^th to discuss the new fiscal cooperation, and before major bond auctions in Spain and Italy at the end of next week. So it could get ugly.

With all of this negativity, one would expect the markets to be in major risk-aversion mode, but to start the US session this is not the case. Both stocks and commodities are higher, including European stocks, and the Euro has bounced back from earlier 16-month lows, though it is fast approaching that level again.

The other news is that Swiss CPI data came in lower than expected showing continued deflation, though it hasn’t budged the franc much. The SNB has maintained its target range fairly well and is still at levels that may be too low to support price stability.

In Canada, the unemployment rate ticked higher to 7.5% vs. the expected 7.4%. This has caused the Loonie to tank vs. USD despite the fact that higher oil prices have been driving Loonie strength. This could reverse yet again, if a better than expected NFP figure is reported.

So the official NFP number is for a gain of 155K jobs, and the unemployment rate is expected to tick higher to 8.7%, so don’t be concerned if that occurs. Keep an eye out for that whisper number though, as sometimes what is seemingly good can be disappointing!

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