With another holiday shortened trading week on the docket, the consequences of a light economic calendar and skeleton crews on trading desks will possibly heighten volatility as FX flow moderates. While there is little in the way of tier-one economic data from North America, there are notable geopolitical events that could potentially drive price action throughout the week.
Over the weekend China released industrial profit numbers, showcasing their goal of a transition to consumer-led economy is still on course, with industrial profits falling to the lowest annualized print in over two years. Although industrial profits did see a decent softening, the pessimistic undertone was moderated by new measures introduced by the People’s Bank of China aimed at boosting the lending books of regional banks. The stealth stimulus measures the PBoC and the government have become very fond of, changes the rules for how loan-to-deposit ratios are calculated and will expand the base of deposits that regional banks will be able to lend against in an order to juice loan growth and help support sliding domestic demand that could put in jeopardy the government’s growth targets. The new measures that will be put into place next year substantiates rumors late last week that the government would be introducing more accommodative lending regulation, but the corroboration of those earlier rumors was still able to help growth-correlated assets catch a bid as the Shanghai Comp finished up by 0.37% and AUDUSD grinded higher into the mid-0.81s.
Heading over to Europe, the current state of Greek government is once again teetering on the edge of instability as Prime Minister Samaras was unable to appoint his Presidential nominee, Stavros Dimas. After the third failed attempt at instituting his choice for President, the current parliament will be dissolved, with snap elections potentially coming as early as January 25th. The concern from Brussels and the rest of the globe is that a shake-up in the governing coalition currently in place will create a clash with international lenders, potentially seeing a revisit of “Grexit” worries if there is an interruption of Greece’s emergency liquidity funding, not to mention contagion worries if the government chooses to default on its debts by trying to negotiate more flexible lending terms. While the concern as to how the Greek drama will play out has so far been localized, watch for updated polling numbers to become a larger influence on price action of assets that are correlated to risk appetite. With the anti-austerity party currently about 6% ahead in the polls over the governing party, 10-year yields on Greek debt have spiked higher to 8.625%, while the Euro is having a tough time managing to regain the 1.22 handle against the greenback. With the possibility of political instability in the region heightened, the prospects of a proactive QE program from the European Central Bank to ease monetary conditions in the zone have in turn increased, and should likely put additional downward pressure on the Euro ahead of the imminent Greek elections.
Further reading:
EUR/USD, GBP/USD, USD/JPY Technical analysis, Pivot points – Dec. 29 2014
AUD/USD bearish towards 0.8080; EUR/USD bearish towards 1.2042 – Credit Suisse
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