The overnight trading markets were somewhat mixed as Asian markets initially opened higher based on the employment data released on Friday in the US, but then gave back a bit after China announced weaker than expected trade data.
The Chinese trade surplus fell to USD 19.3 billion in November, compared to the expected number of USD 26.85 billion. Exports only rose 2.9%, which was way below the expected 9.6%, and a large fall from October’s 11.6% rise. Imports, which were expected to rise about 2% were flat, after a rise of 2.4% in October.
The EUR had a relatively quiet trading range overnight, breaking below 1.2900 to test the 1.2885 level before bouncing back above 1,2900. It currently (5:30 am) is trading at the 1.2905 level. The big EURO news overnight was from Italy, where Prime Minister Mario Monti said over the weekend that he would resign after approval of the 2013 budget. Former Prime Minister Silvio Berlusconi has continued attacks on PM Monti, and Monti has said after the budget passes, he will hand in his “irrevocable resignation”. The budget is expected to be passed by Christmas, and after dissolution of parliament, elections would be held within 70 days, or by the end of February. The political situation in Italy just adds to the uncertainty in Europe and this will have a negative impact on the EUR in the coming months.
The EUR looks to test lower levels and the Monti news just adds fuel to this fire. He is considered “pro-Euro”, and political instability is never good for a currency. European Union leaders meet this week in Brussels on December 13 and 14 for yet another summit. They will be discussing measures to end the EURO crisis, which include increasing EU powers to intervene in national budget talks as well as the establishment of a single banking supervisor. The will certainly be comments coming from this meeting that will affect the EUR later this week.
Also this week, the FOMC holds it last meeting of the year tomorrow and Wednesday. At the end of the meeting the markets will look for an announcement as to whether the FED will expand purchases of assets as Operation Twist is due to expire this month. Most expect an announcement of some new operation to “print money”, which would have a negative effect on the USD.
The Chinese data had an initial negative effect on the AUD, but the currency has rebounded and is trading in the middle of its overnight range.
The USD/CAD fell to .9865 overnight, the lowest it has been since October 19, before bouncing back a bit to the .9880 level. Resistance in the USD/CAD remains at .9910, and a test again of the .9865 level, would target .9840.
EUR resistance remains at the 1.2940 level, with support at 1.2885 and 1.2860.
President Obama and House Speaker Boehner met on Sunday to discuss the fiscal cliff. While the was no comment on what was discussed, it was stated that the lines of communication remain open. For those keeping score, the are now just 20 days left to come to an agreement.
According to the latest CFTC report, EUR net shorts fell to 32,800 contracts in the period ending December 4, down from the previous week’s 66,700. This was the lowest net short number of 2012. With the recent moves higher before the end of last week, the reduction in short positions is not surprising. This number will most likely increase when the numbers for last week are released. JPY shorts rose to a 2012 high of 90,300, while AUD longs rose to a 2012 high of 92,200 and CAD longs fell again to 57,100. The CAD long positions had gotten as high as 111,900 in September.
Looking ahead to today, markets will be cautious ahead of the FOMC and EU summit meetings, but another test of the downside wouldn’t surprise.
Further reading: FOMC Preview
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