EUR Stuck in Limbo; Waiting for the Next Headline

Asia walked in this morning with most currency pairs at similar levels to yesterday, having flirted with both highs and lows outside the previous day’s ranges during the overnight session. Sentiment favoured an early stop-loss hunt through 1.2740 in EURUSD (overnight low) but once that was accomplished it was back to range-trading with little in the way of data to influence.
 
The only data releases scheduled were UK shop prices and Australian job vacancies. The British Retail Consortium’s data showed shop price inflation falling to a 16-month low in December, no doubt a welcome piece of news for the Bank of England ahead of its monetary policy meeting this week. Shop prices rose 1.7 percent y/y, down from 2.0 percent in December and better than pessimistic estimates of 2.3 percent. The peak for this series was at 2.9 percent last June. Most of the fall could be accounted for by the heavy discounting of retailers in the Christmas run-up, with non-food items down to a two-year low of 0.3 percent while food price inflation bucked the trend to rise 0.2 percent to hit 4.2 percent y/y.

We saw signs that the Australian labour market continued to cool into the year end with job vacancies falling 3.3 percent in the three months to November 2011. Private sector vacancies fell 3.3 percent q/q while those in the public sector fell 3.1 percent. This has dragged annual employment growth down to a mere 0.4 percent in November and a factor behind the latest uptick in the unemployment rate to 5.3 percent (next data due January 19).
 
EUR/USD had flirted above the 1.28 mark briefly in the overnight session as Fitch noted that France’s AAA rating would probably survive 2012 intact (if no shocks!) and headline French industrial production data beat expectations (rising 1.1 percent m/m and 0.9 percent y/y from 0.1 percent and 1.7 percent respectively). In contrast, Fitch also warned that Italy was at the front line of the EU crisis and was a strong candidate for a downgrade if proper financial firewalls cannot be established in Europe. A sustained push higher was not forthcoming as the European Central Bank's Nowotny also warned that the Eurozone remains in a difficult situation and at risk of a mild recession while market chatter/rumour centred on the possible need of a second bailout for Ireland. The commodity space was well supported with gold breaking above the 200-day MA which bolstered the AUD through 1.0350 versus the greenback at one stage and oil’s burst through $102 p/barrel gave the CAD a lift.

US data releases were not mainstream with NFIB small business optimism matching forecasts with a 93.8 reading, its highest reading since February last year and up from the 92.0 recorded in November. The IBD/TIPP economic optimism also outperformed, rising to 47.5 from 42.8 and above consensus of 45.0. Fed speakers Williams and George noted that further Fed stimulus may be implemented if inflation and growth fall below Fed forecasts. Wall St climbed to a five-month high with financials leading the way and the materials sector buoyed by Alcoa’s upbeat forecast.

Federal Reserve speakers are out in force again tonight with speeches scheduled from Evans, Lockhart and Plosser which may be more of a mixed bag than yesterday’s dovish crew, given the latter two’s less-dovish leanings.

Data Highlights
* US Dec. NFIB Small Business Optimism out at 93.8, as expected, vs. 92.0 prior
* CA Dec. Housing Starts out at 200.2k vs. 185.5k expected and revised 185.6k prior
* US Jan. IBD/TIPP Economic Optimism out at 47.5 vs. 45.0 expected and 42.8 prior
* US Nov. JOLTs Job Openings out at 3161 vs. revised 3224 prior
* US Nov. Wholesale Inventories out at +0.1% m/m vs. 0.5% expected and revised 1.2% prior
* UK Dec. BRC Shop Price Index out at +1.7% y/y vs. 2.0% prior
* AU Nov. Job Vacancies out at -3.3% q/q vs. +3.2% prior