13 února 2009


• Germany Q4 preliminary GDP reading out at -2.1% QoQ vs. -1.8% expected
• Switzerland Jan. PPI out at -0.8% MoM and -0.9% YoY vs. 0.0%/-0.1% expected, respectively
• EuroZone Q4 preliminary GDP reading out at -1.5% QoQ vs. -1.3% expected
• Canada Dec. New Motor Vehicle Sales fell -14.8% MoM

Events Today:
• US Feb preliminary University of Michigan Confidence (1500)
• US Treasury Secretary Geithner to hold press conference after G-7 (Sat 1430)
• New Zealand Q4 Producer Prices (Sun 2145)
• Japan Q4 preliminary GDP (Sun 2350)

Equities stepped back from the brink yet again yesterday, as a late US session rally materialized on a vague announcement from the Obama administration that new measures are on the drawing board to aid certain mortgage holders before they get into trouble. The S&P has still avoided penetrating the 800 level, but the technical action in the Dow was perhaps more interesting, as the index dipped to new lows for the year before recovering and closing on a high note. This comeback throws a hurdle in front of the risk averse crowd, as we may need to see these lows breached to get out of this ever ranging environment in the pairs that trade along the axis of risk appetite.

Germany's GDP contracted at -2.1% on quarter on quarter comparisons, the sharpest contraction in more than twenty years and worse than expected. The overall EuroZone growth was also weaker than expected and continues to provide a strong headwind for the single currency in addition to the challenges in the banking system we discussed yesterday.

The Telegraph was out this morning with an article suggesting that the German and French finance ministers are ready to take off the gloves with the UK's Darling on the weak sterling issue this weekend at the G7 meeting in Rome, as they are dealing with domestic complaints of British suppliers gaining orders due the UK's weak currency. The article even dramatically suggested that we could be witnessing the "opening salvo of a currency war". This is perhaps a bit over the top, and we suspect that the EuroZone's problems are so intractable that their weight will soon help unwind another sizable chunk of the EURGBP rally from last year as the pair heads back toward its 200-day moving average, now coming in below 0.8300.
Still, all eyes should be on the intra-Europe dialog between the major powers over the weekend. We're also curious whether Euro is losing enough shine here to weaken through recent support in EURUSD regardless of the moves in other major asset markets. The 1.2700 area remains the first key downside trigger for opening up a try at those old lows below 1.2350. We suspect that the G-7 meeting will generate no changes to the basic line of recent meetings, and the focus is likely to remain on the global economic weakness and concerns over protectionism.

The Australian stimulus package finally passed muster in the Asian session, and the Aussie continues its bid tone as we head into the weekend. The recent sell-off from 0.6800+ cut deep, however, and AUD will likely need for equities to continue to rally to gain further traction. A key resistance level in the form of the 55-day moving average is approaching just above 0.6700.

Remember that this is a three-day weekend for US financial markets, as Monday is a banking holiday (President's day). Obama is trying to push Congress to pass the $789 Billion stimulus bill that was approved by the Senate yesterday after three Senate Republicans crossed the aisle after a compromise to the original, larger bill. We have a hard time seeing how this package can generate any significant optimism in the market, but after yesterday's late rally, there is the possibility that those positioned for further negative sentiment will want to square their positions ahead of the long weekend. Stay tuned.

The Japanese preliminary GDP figures for Q4 are due in Monday's Asian session, with an unbelievable -11.6% Annualized contraction expected. As one commenter stated: this is the worst data for any major economy - even during the great depression. With this in mind, it is tough to build a bullish case for the JPY, though it still seems to be trading largely on moves in risk appetite.
EURGBP saw a very interesting pivot yesterday, as the pair found strong resistance right at the key 55-day moving average. The outlook is bearish below this level, but the situation is muddled a bit by the move back above 0.8800, which was the old low. If the pair works its way below recent lows, we could be launching an attack at the 200-day moving average, currently down below 0.8300. Just as we are going to publish, Lloyds announced further problems (7 billion pounds of impairments - worse than expected) at HBOS.

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