Morning Briefing

Morning Briefing for Friday, 25 May 2012 (Updated 09:27:05 CET)Negative Outlook in EU sends EUR/USD to new 2012 Lows

What’s new:

Asia: Japanese CPI in line with expectations. Risk mixed overnight. EUR/JPY consolidates below 100.
United States: Soft core durables send GDP forecasts down. USD gaining against most peers
Europe: Decent indices, but Euro selling off. Still focus on Greece and the lack of progress.

Rates in Asia and Indices:

                             Low               High       Change
EUR/USD          1.2519          1.2561    0.21 %
USD/CHF           0.9567          0.9606    0.16 %
GBP/USD           1.5648          1.5676    -0.00 %
USD/JPY             79.54           79.82    -0.06 %
EUR/CHF           1.2012         1.20375    -0.03 %
EUR/JPY             99.73           100.06    -0.25 %
Dow Jones        12419.63    12539.59    0.26 %
Nasdaq               2512.35       2554.2    -0.61 %
S&P 500             1310.5         1324.14    0.13 %
Nikkei 225           8550.93      8616.85    0.19 %
Shanghai            2327.408    2355.808    -0.71 %
Gold spot           1551.48      1562.51    0.18 %
Oil Future           90.2              91.05    0.17 %

Comments:

Markets are still heavily focused on the development in the Euro zone and overnight the EUR/USD revisited yesterday and 2012 lows at 1.2515, but managed to be held above. As most could have predicted, the result of the informal meeting on Wednesday did not have any real outcome and the markets are now focusing on the summit over the weekend. Euro bonds seem to be in focus again, but German officials are pointing out, that these would be illegal under the current EU treaty. If they were to be introduced under a new treaty the next step would be to price them in a decent way. Thursday, another round of negative data spread over Europe as the composite PMI fell to 45.9 vs. 46.6 expected and regional indices also feel short of expectations.

In Germany, the darling of the EU, the bad conditions around Europe spills into the German economy. Yesterday, the GDP came out as expected at 0.5% QoQ, but May IFO indices fell quite considerably and the Expectations index, which shows the outlook, came out at 100.9 vs 102 expected, adding downwards pressure on the Euro. It had to come sooner or later, that Germany would be affected by the surrounding situation, despite strong effort to keep the wheels turning.  

EUR/CHF, which has been struggling to keep the 1.20-level set by the SNB due to the outright selling of Euros spiked briefly higher to 1.2075 on back of rumors of intervention and a rumor on the Swiss introducing a tax on foreign deposits. However, the pair came back in its 1.2005-1.2020 range in the late NY session and kept subdued in Asia.

US figures did not have a big impact in the market, but due to the shortfall in core durable goods orders, the GDP forecasts could be revised lower. The USD index strengthened yesterday 0.3% and is at the highest level since December 2010, when EUR/USD traded around same levels as currently.

The markets do not have many risk events going on before the weekend, but any news from Greece could change market sentiment in a flash. It is very choppy at the moment out there, but smoother than last week, which was heavy on refinancing auctions. EUR/USD, any break below 1.2515 would open up for a test of next support at 1.2480. Resistance at a throwback to the prior break-out level at 1.2615.

In cable, the pair is currently testing the 61.8% Fibonacci retracement in the 2012 low-high wave at 1.5645. A close below would give scope for the line in the sand at the 1.56-figure. Resistance at 1.5732 and then 1.5770.

Have a nice weekend!