Data/Event Risks
• USD: New Home sales and the Fed’s Beige Book are the only releases of note today. Month-end flows probably at their peak today.
• EUR: German CPI and Irish retail sales emerge later today. Note the gains in Spanish bonds in recent days – market fears that Catalonia vote will trigger a rush for independence have diminished.
Idea of the Day
Now that Washington politicians have eaten as much turkey as they can bear, the hard grind of finding a path through the fiscal cliff maze recommences. Although there is some thawing on both sides, they remain a long way apart, and markets may need to put some additional heat on them in order for deeply entrenched positions to shift. Unfortunately, the latter is not yet forthcoming. Fiscal cliff and tax uncertainty spells trouble for risk assets, and benefit the dollar, as do month-end flows.
Latest FX News
• EUR: Yet another case of buy the rumour (of a Greek debt deal) and sell the fact, with the euro retreating after running into a determined wall of sellers up at 1.30. Upbeat economic news out of the US helped the buck, as did month-end flows. Single currency may drift lower near term.
• JPY: Yen shorts headed for cover again overnight, amidst rumours that the government in Japan would announce a massive fiscal stimulus on Friday. May see yen climb further in the very near term in what will be a big test of conviction for the bears.
• AUD: Struggling very slightly, although not in a way that should cause too many alarms. Asian equities off by around 1% overnight and yet Aussie still fairly firm. Some traders alert to rising prospect of a rate cut next week.
• GBP: Sterling got a lift yesterday as traders and investors alike responded positively to the news that Mark Carney had been appointed BoE Governor. Month-end flows probably helped the pound as well. Some of yesterday’s gains have been diluted overnight.
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