Pre-New York Open: Sentiment Supported by Optimism Ahead of Key EU Meetings

remains soft on optimism ahead of a significant week in Europe. Markets are giving EU leaders the benefit of the doubt as Germany’s Merkel and France’s Sarkozy are meeting today before the Dec. 9 EU Summit which may set the tone for the coming weeks. Sentiment is firm with global equities trading higher and U.S. stock futures in positive territory (DJIA futures are currently up +1.12% and S&P futures are up +1.24% at time of writing). UST yields are higher across the board with the 10-years higher by nearly 6 bps at 2.09%. On the data front there is the Nov. ISM non-manufacturing index and Oct. factory orders due at 1000ET.

• EUR advancing as the Italian cabinet approved PM Monti’s austerity package. Italy’s 10-year yields are significantly lower and the 30B euro deal will be presented to lawmakers later today. Germany says it wants the IMF to adopt a ‘decisive’ crisis role and says that they wouldn’t oppose Bundesbank loans via the IMF. Economic data in Europe showed a drop in services PMI for Nov. while EZ retail sales for Oct. grew +0.4% m/m (cons. +0.1 prior -0.7) and fell -0.4% y/y (cons. -0.8 prior -1.5). EUR/USD climbed back above the 1.34 figure to 1.3440 currently and approaches the 21-day SMA around the key 1.35 level.

• JPY weaker against all of the G10 currencies as sentiment continues to be supported by hopes that meaningful progress can be made in Europe. There was no economic data released in Japan overnight and the Nikkei 225 finished higher by +0.60%. USD/JPY currently tests the 78.00 figure and sees a confluence of daily ichimoku levels around the 77.45 zone (cloud bottom, cloud top, Kijun line). EUR/JPY is approaching the 55-day SMA ahead of the 105.00 figure and GBP/JPY is testing the base of its daily cloud around the 122.10 zone.

• GBP is trading mixed against the majors – stronger against the safe havens USD, JPY, CHF while weaker against the EUR, commodity currencies and Scandies ahead of this week’s BoE meeting. Expectations are growing for the bank to increase its asset purchases (although no change is expected at the upcoming meeting) as data has come in soft which may put pressure on the pound. GBP/USD rebounded from below the 1.56 figure on the back of a weaker dollar and the pair sees the 21 and 55-day SMA’s converge around 1.5740 which is likely to cap the upside in the near term.

• CAD stronger across the board as equities advance and oil continues higher. WTI crude is holding above the 100 level (currently around 101.80 and up +0.84% on the day). Oil is higher in part on growing tensions in the Middle East which raise supply concerns. It is also gaining on the back of a weaker buck and improving sentiment. USD/CAD was rejected ahead of the 1.02 figure and currently trading around 1.0150. The pair remains below the cluster of daily ichimoku levels which come in around the 1.0175-1.0215 area. CAD/JPY is higher and approaching the 100-day SMA which held as resistance on Friday’s test of the level.