- UK’s Cameron: Britain will not participate in EU bailout mechanism
- US jobless claims jump 35,ooo to 445,000, distorted by holidays, Labor says.
- US November trade deficit narrows to $38.3 bln
- US PPI rises 1.1% in December, core prices up 0.2%
- ECB’s Trichet surprises market with increased inflation focus
- Later in day, Trichet calls for closer political union in the EU
- German coalition ally opposed to increasing EU bailout fund
- Fed’s Bernanke: Sees US economy recovering; 3-4% growth likely but not enough to reduce unemployment quickly enough
- RTE: No cut in Irish bailout loan rate likely
- ECB’s Stark: Inflation to stay above target until late in the year but does not change ECB’s medium-term view that inflation expectations remain contained
- S&P recovers intraday losses late, closes 0.2% lower at 1284.
- US yields fall 8 bp to 3.30% despite PPI rise; Treasury sales conclude for the week
- Gold falls to 1373 despite weak dollar
EUR/USD opened very firm at 131.50 and end much, much firmer at 1.3360. Along the way we traded as high as 1.3383.
Massive short-covering dominated the early part of the session while reversing to long positions dominated the market for the balance of the day.
Three successful auctions from Portugal (Wednesday) and Spain and Italy (today) combined with hope that the EU will increase its bailout fund to ward off further contagion prompted a further contraction in yields of peripheral European debt and that of the German benchmark.
The markets was caught way of guard by Trichet’s sudden shift in focus to rising near-term inflation pressures when the market was fully expecting a sovereign debt focus.
The market was already roaring above 1.3200 when Trichet began to speak and it shot through 1.33 to 1.3325 in under an hour. The market took aim at a 1.3350 digital option which expired at 15:00 GMT but it did not break that level until after the NY option cut had passed.
Middle Eastern central banks were sellers from above 1.33000 while further central bank offers were clustered between 1.3370 and 1.3400, traders reported. 1.3400 is the 100-day moving average. Stops are eyed above that level.
Most of the other majors were captives of their Euro crosses today. USD/JPY pulled back 82.55/60 but found Japanese bids on dips once again. Rallies are muted by dollar weakness while dips are supported by demand for EUR/JPY. We close at 82.82.
GBP/USD slipped from 1.5883 highs as EUR/GBP shot higher on massive short-covering. Cable closes at 1.5833.
AUD/USD jumped to 1.0018 on short-covering as inflation jitters and dollar weakness prompted traders to square up. We slipped back in quiet afternoon trade as flood worries and selling pressure in commodities (unexpected with the weaker dollar) prompted profit-taking from short-term momentum players. We close at 0.9968.
The CHF weakened dramatically today as the lessening of sovereign debt concerns in Europe prompted traders to liquidate long CHF positions. EUR/CHF rose to 1.2885 from below 1.2700 in New York trade.
