When we look at the price action in the forex market, we see that trading is likely to remain thin until next week. Investors expect little market action into the year-end holidays as many market participants have already closed their books for this year. Today we don’t expect high volatility but tomorrow the markets’ focus will be on Italy’s planned debt sale of up to €8.5 billion.
Some investors fear that Italy could suffer as Ireland, Greece and Portugal did. Italy faces around €100 billion in bond redemptions and coupon payments between January and April. Analysts at BNP Paribas said “The Italian auctions will be carefully watched especially with Italian 10-year yields nearing 7%; it will be another test of the market’s appetite for what will be a feast of sovereign issuance in 2012”. BNP Paribas analysts said “Also on Thursday, we expect German CPI to come in weaker than consensus, which may weigh on the euro in light of departing ECB executive board member Bini Smaghi’s comments that the ECB has the option to use QE-style policies if the threat of deflation emerges”.
Meanwhile, the economy in Greece is still a big mess. The administration had planned to collect €5 billion by the end of the year through privatization alone but it managed to collect only €1.8 billion. We see that the implementation of reforms is taking too long. In addition, government spending is still too high and revenues are too low.
Despite the European Central Bank’s move aimed at encouraging lending, many players believe banks will likely use the funds to repay their debt and clean their balance sheet of bad assets first rather than lend and help spur European economies.
Today the Asian stock markets opened slightly lower as most of the market participants are away for year-end holiday. NIKKEI started the day at 8,426.09, previous close was 8,440.56. HANG SENG opened at 18,573.27, previous close was 18,629.17. the president of Commons Asset Management, Tetsuro Ii said “More people wanting to bring their positions to neutral ahead of the new year’s holidays than looking for bargains is keeping prices depressed in low volumes”.
EUR/USD is trading at 1.3069 by the time of typing and for today resistances are located at 1.3087 and 1.3130. Support levels are 1.3045 and 1.3002.
GBP/USD is at 1.5664. Resistance levels are located at 1.5700 and 1.5733. Supports are located at 1.5600 and 1.5557.
USD/CHF is trading at 0.9339 by the time of typing and for today resistances are located at 0.9365 and 0.9414. Support levels are 0.9319 and 0.9274.
AUD/USD is trading at 1.0162. Resistances are located at 1.0196 and 1.0220. Support levels are 1.0131 and 1.0086.
The economic calendar is empty today. The direction of yields on highly indebted eurozone sovereigns will remains as a market focus for the next couple of days.