The USD extends this week's strong rally, as markets' focus is back on the contagion risks of the European debt crisis. Italian Prime Minister designate Monti will unveil his cabinet today, but markets seem to be quite unconvinced by his appointment so far. There are still concerns as to how Monti might overcome the current debt and fiscal problems. Italian 10-year yields broke above the unsustainable 7% yesterday, while 5-year CDs made new a high above 600bps. The worry over contagion also pushed German bund spreads with Spain, Belgium, Austria and even France to new euro-era records. The main focus will now turn to Spain and France’s bond auctions. Spain is scheduled to auction EUR 4bn of 2022 bonds today, while France will sell notes maturing 2013 to 2016 tomorrow.
Technically, the USD index's break of the 78.16 resistance level has confirmed a resumption of its recent rise from 78.16, and the index could now move towards the 80 psychological level in the near term. A similar picture is seen in EUR/USD, where a break of the 1.3483 support confirms the resumption of the near-term fall, and could pave the way to a low of 1.3145. EUR/JPY's fall has also accelerated to as low as 103.45 thus far. The AUD and CAD also edged lower against the USD, but momentum is weak so far. Markets' main focus remains more on the selling of European majors against the USD and YEN.
In respect of the YEN, the Bank of Japan has left rates unchanged at 0-0.1% today (as we expected). Its asset buying size was also left unchanged at JPY 20 trillion. The bank downgraded its economic assessment, noting that economic activity has picked up "at a more moderate pace" because of the slowdown in overseas economies. The bank warned that the European debt crisis could result in weaker growth in the "global economy, particularly through its effects on global financial markets". And, Japan is facing an "adverse effect" from the global slowdown, the Yen’s strength and the impact of Thailand's flood. Meanwhile, I don’t expect Japan to emerge from this deflationary period before the end of fiscal 2013.
Looking ahead, UK jobs data and Eurozone inflation will be released in the European session. But the main focus will be on the Bank of England inflation report. From the US, CPI, TIC capital flow, industrial production and NAHB housing market index data will be featured.
Economic Indicators Out Today
GMT | Ccy | Events | Actual | Consensus | Previous | Revised |
23:30 | AUD | Westpac Leading Index M/M Sep | -0.30% | 0.80% | 0.70% | |
4:15 | JPY | BoJ Rate Decision | 0.10% | 0.10% | 0.10% | |
9:30 | GBP | Jobless Claims Change Oct | 21.0K | 17.5K | ||
9:30 | GBP | Claimant Count Rate Oct | 5.10% | 5.00% | ||
9:30 | GBP | ILO Unemployment Rate 3M Sep | 8.20% | 8.10% | ||
10:00 | EUR | Eurozone CPI M/M Oct F | 0.30% | 0.80% | ||
10:00 | EUR | Eurozone CPI Y/Y Oct F | 3.00% | 3.00% | ||
10:00 | EUR | Eurozone CPI - Core Y/Y Oct | 1.60% | 1.60% | ||
10:30 | GBP | BoE Inflation Report | ||||
13:30 | USD | CPI M/M Oct | 0.00% | 0.30% | ||
13:30 | USD | CPI Y/Y Oct | 3.60% | 3.90% | ||
13:30 | USD | CPI Core M/M Oct | 0.10% | 0.10% | ||
13:30 | USD | CPI Core Y/Y Oct | 2.10% | 2.00% | ||
14:00 | USD | Net Long-term TIC Flows Sep | 63.4B | 57.9B | ||
14:15 | USD | Industrial Production Oct | 0.40% | 0.20% | ||
14:15 | USD | Capacity Utilization Oct | 77.70% | 77.40% | ||
15:00 | USD | NAHB Housing Market Index Nov | 17 | 18 | ||
15:30 | USD | Crude Oil Inventories | -1.3M | -1.4M |
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