TRADERS´ Blogs

Data/Event Risks

• USD: Regional ISMs are on the menu today, as well as personal income and spending. Next week is more critical, with a host of labour market data and the national ISM, as well as more flavour on how the fiscal cliff negotiations are proceeding.    
• EUR: Only second tier news today, the most interesting being the EC unemployment rate. Peripheral bond yields declined further yesterday, despite continuing concerns re both Greece and Spain.

As yesterday’s trading session made clear, the performance of risk assets and currencies over coming weeks will be held hostage to perceived progress in those tricky fiscal cliff discussions across the pond. If it appears that negotiations are grid-locked, then the dollar will climb as demand for safe-haven assets grows; alternatively, if the prospects for a deal are hopeful, then risk assets will rise and the dollar weaken. As Bloomberg reported yesterday, investors are generally optimistic that Capitol Hill will bridge its differences before the end of the year, although as Harry Reid pointed out on Tuesday, actual progress thus far has been minor and the gulf between the two sides is still very wide.

 Data/Event Risks

• USD: Busy day for releases, with GDP for Q3 and jobless claims at 1.30pm, followed by pending home sales at 3pm. Q3 GDP may be revised higher, which could assist the dollar. US Treasury Secretary Geithner meets Congressional leaders to discuss the fiscal cliff.    
• EUR: Italian business confidence and EU consumer confidence out this morning. Greece still not out of focus, as questions persist re proposed debt buyback plan. On a more positive note, Spanish banks are to receive EUR 37bn of funding after EU regulators finally gave their imprimatur.

Those of a cynical disposition would not be remotely surprised that the initial happy-clappy expressed by both sides immediately after the Presidential election regarding resolution of the fiscal cliff has rapidly evaporated.

Data/Event Risks

• USD: New Home sales and the Fed’s Beige Book are the only releases of note today. Month-end flows probably at their peak today.   
• EUR: German CPI and Irish retail sales emerge later today. Note the gains in Spanish bonds in recent days – market fears that Catalonia vote will trigger a rush for independence have diminished.

Data/Event Risks

• USD: Lots of potential event risk today, with numerous releases later, including durable goods orders, Case-Shiller house prices and consumer confidence. Dollar has lost some impetus in recent days – month-end flows may provide some brief respite. 
• GBP: Major focus is the Q3 GDP figures – the preliminary estimate was a surprise +1.0%. Sterling has taken a backseat recently to other majors.
• EUR: Greek debt deal will be dissected today. Package of EUR 43.7bn to be released progressively as certain conditions are met, with first instalment to be paid December 13^th. The interest rate on the loans has been reduced, the maturity of the loans has been lengthened from 15 years to 30 years, and an interest repayment-deferral of 10 years has been granted. Greece also likely to attempt a debt buyback.

We’ve a few weeks to go before the year draws to a close, but unless something dramatic happens this is shaping up to be one of the least dramatic years for FX in recent times. Not only are we seeing less volatility, but looking at the net changes across the majors, now vs. 2011 closing values, the standard deviation is the second lowest over the past 12 years. Remove the yen (USD/JPY up 7% this year), then the standard deviation of net changes is the same as for 2011. The other way of interpreting this is the multi-year lows we are seeing in overall implied volatility measures (e.g. Deutsche Bank’s CVIX index of implied currency market volatility), which are at five-year lows.  It’s worth looking more into why this is the case and whether it’s likely to change next year.

Data/Event Risks

• USD: Fiscal cliff discussions recommence this week – progress (or lack of) will be a key determinant of dollar direction. Tomorrow is hectic for data releases, including durable goods orders,  Case-Shiller house prices and consumer confidence. 
• GBP: Not much out today but tomorrow we see if Q3’s 1% GDP increase will be revised. BoE still adopting a wait-and-see on policy.
• EUR: Minor economic news, including Spanish and Irish house prices. Progress in Greek debt discussions will be critical.