Sentiment Moderately Higher Ahead of G20

softer against most of the majors with the notable exception being the Japanese yen as sentiment stabilizes ahead of this weekend’s G20 meeting. Officials are expected to debate the terms and size of IMF funding to help Europe. Asian stock markets finished higher and European equities are currently mixed. U.S. stocks are marginally higher with the DJIA currently up about +0.05% and the S&P 500 up around +0.18%. Due out shortly is the February final University of Michigan confidence survey at 0955ET which is forecast to rises to 73.0 from the prior 72.5 and January new home sales are set for release at 1000ET and expected to increase 2.6% to 315k from the prior 307k. Fed speakers today include Williams, Bullard, Plosser and Dudley.

• EUR higher against the USD, JPY and the commodity currencies (CAD, AUD, NZD) after a successful Italian bond auction and Greek cabinet approval of the swap plan. The ECB’s Nowotny spoke and said that the bank is able to provide as much liquidity as needed and added that there is no need for another 3-yr tender after February. On the data front, the 4Q final German GDP figures were unrevised, remaining at -0.2% contraction which did not seem to weigh on sentiment. It appears that the market is not concerned with the recent news of the recession in the Euro area (i.e. yesterday’s EU forecasts) as this was largely expected and may be already priced in. The euro continued to march higher against the buck and is currently trading near session highs of about 1.3430 – the highest level since early December.

• GBP is stronger after the release of the second estimate of 4Q GDP came out as previously estimated showing a decline of -0.2% q/q. Looking deeper into the figures shows stronger than expected private consumption at +0.5% vs. prior -0.1% (cons. +0.2%) and government spending which came in at +1.0% from the prior -0.3% (cons. 0.0%). The pound rose above the 1.58 figure against the USD while GBP/JPY has shot higher to current levels of around 127.70/75 as it trades at 6-month highs.

• JPY underperforming today as it is significantly weaker against all of the G10 currencies. Key technical levels have been broken as the yen continues its slide. EUR/JPY broke above the 200-day SMA with decent follow through while AUD/JPY, GBP/JPY, USD/JPY, and CAD/JPY all reached new multi-month highs. USD/JPY is currently around 80.60 and approaching a major technical level around 80.95 which is the top of the week ichimoku cloud. A weekly close above here would suggest the potential for a longer term rally in the pair.

• CAD weaker against its major counterparts except against the yen despite the continued rise in oil prices. Crude oil is currently up about +0.66% and around the 108.50 level which is largely due to tensions in Iran and supply concerns. As we have previously noted, the correlation between oil and the Loonie tends to weaken when the price of crude is above $100. USD/CAD remains range bound fluctuating around parity. The pair has been consolidating for several weeks between the 55-week SMA which is currently just above the 0.99 figure and the 100-week SMA which is currently around 1.0055.