New York Open: Markets Optimistic but Vulnerable to Headline Risk

weaker across the board as markets remain optimistic following reports of an IMF proposal to expand lending by $500B to $885B. A boost in lending capacity would likely reduce the risk of contagion from the EU debt crisis. News that Greece is nearing a deal with its private sector creditors is also helping to support risk appetite. Sentiment is fragile however as it has been driven largely by headlines due to lack of economic data out of Europe today. UST yields are marginally lower, European equities are mixed and U.S. stock futures are currently positive. The Dollar Index is currently around 80.70 and sees the daily Tenkan line as near term resistance while the Kijun line acts as support for now. On the data front, U.S. Dec. PPI figures are set for release at 0830ET, Nov. TIC flows are due at 0900ET and industrial production is scheduled for 0915ET.

• EUR firmer against the G10 currencies except against the NZD on optimism surrounding the Greek PSI deal and reports that the IMF is seeking to expand lending. Initially the news was of a boost of $1T in additional capacity, however reports now suggest an increase of $500B. The euro dipped following the update, however it managed to hold on to gains so far. The EUR is strongest against the buck with EUR/USD currently higher by about +0.63%. There was no significant economic data released in Europe but successful auctions in Germany and Portugal have helped to support the common currency. EUR/USD rose to session highs of nearly 1.2845 and have corrected lower to around 1.2815 currently. The euro remains vulnerable to headline risk as details continue to emerge regarding the IMF proposal and Greece debt deal.

• CAD is trading mixed against the majors – softer against NZD, EUR, CHF and the Scandies but stronger the USD, JPY, AUD and GBP.  Global equities are mixed and oil is trading slightly higher with WTI crude currently up about +0.51%. In USD/CAD, the pair is testing long term triangle support just above the 1.01 figure after breaking below the 100-day SMA which is currently around 1.0170 and now acting as short term resistance. The Bank of Canada, which kept rates on hold yesterday at 1.00%, will release its Monetary Policy Report today at 1030ET.

• JPY still rangebound but lower against the majors as traders show an appetite for risk. Asian markets finished higher overnight with the Nikkei 225 climbing by about +0.99% despite declining industrial production. The Nov. final IP fell by -2.7% m/m (prior -2.6%) and -4.2% y/y (prior -4.0%) while capacity utilization dropped -2.9% m/m. The yen is weakest against the kiwi with NZD/JPY currently up about +0.74%.

• GBP mixed after mixed UK employment data. Dec. jobless claims were less than expected at 1.2K (cons. 7.0K) however the ILO unemployment rate unexpectedly rose to the highest level since early 1996 with a print of 8.4% from the prior 8.3% (cons. 8.3%). The pound is weaker against NZD, SEK, CHF, EUR and slightly higher against the Aussie, Loonie, yen and USD. GBP/USD is currently trading just below the daily Tenkan line which is currently around the 1.5380 level and may be near term resistance.