New York Open: Relief Rally Sees a Rebound in the Euro

is softer against all of its major counterparts as sentiment is moderately higher. Global equities are mixed, UST yields are higher and EU sovereign yield spreads are mostly tighter. The Dollar Index tested the 81.50 level which has capped the session highs so far. The buck is weakest against the NZD and NOK. There are economic data releases of note, however Atlanta Fed President Lockhart who is a 2012 FOMC Voter will be speaking later today.

• EUR mixed in the G10 space – gaining against the USD, AUD, JPY, CAD and GBP while declining against the NZD, NOK and CHF. German industrial production was weaker than expected with a m/m decline of -0.6% (cons. -0.5% prior +0.8%) and 3.6% y/y (cons. 3.9% prior 4.2%). Other economic data showed a larger than expected German trade surplus in Nov. of 16.2B (cons. 12.0B prior 11.5B) with exports growing 2.5% (cons. 0.5%) and imports falling -0.4% (cons +0.5%). German Chancellor Merkel and French President Sarkozy had a meeting today to discuss the debt crisis. The two urged EU transaction tax proposals and said that it is their ‘intent that no country leaves the euro’. Merkel said that Germany may accelerate payments to the ESM and noted that a fiscal pact may be completed as soon as Jan. 30. EUR/USD rebounded towards the 1.28 but found sellers ahead of the figure. The pair is currently trading around the 1.2750 level where the 55-hour SMA comes in.

• CAD slightly firmer against the buck with oil trading higher (WTI is currently up +0.19%) and U.S. stock futures are pointing to a positive open. On the data front, Canada’s building permits fell -3.6% m/m in Nov. which was better than the expected drop of -5.0%. USD/CAD is lower and sees the 21-day SMA around the 1.0250 level which may provide near term support. CAD/JPY is currently higher after making session lows of around the 74.55 area.

• CHF higher after SNB Chairman Philipp Hildebrand resigned. The SNB said the resignation is with immediate effect and the bank is scheduled to make a statement shortly. Swiss Nov. retail sales were stronger than anticipated with a y/y change of +1.8% (cons. +0.2% prior +0.1%) and the unemployment rate in Dec. ticked higher to 3.1% from the prior 3.0% as expected. The franc strengthened with USD/CHF dipping below the 0.95 figure while EUR/CHF fell to session lows of just above the 1.21 figure. In our view, EUR/CHF weakness may provide long opportunities as the bank is expected to maintain the 1.20 floor in the pair.

• AUD weaker across the board except against the USD as Australian retail sales were unchanged in Nov. (cons. +0.4%). The Aussie is weakest against the kiwi with AUD/NZD currently approaching the 1.30 big figure. AUD/USD briefly tested below the 55 and 100-day SMA’s today but has since rebounded back above the 1.02 level and EUR/AUD is seeing a moderate bounce today and the 1.25 level remains a key pivot.