Late on Friday, markets were hit with some risk negative headlines as Fitch elected to downgrade the credit ratings of five Eurozone member nations. The reaction, however, was generally muted as bond markets had already closed for the week and Fitch had already made comments that these downgrades would be made. Spain, Slovenia and Italy saw a reduction of two ratings levels while Cyprus and Belgium are now seen one level lower. With this ratings move already priced into markets, the EUR/USD remains near its weekly highs near 1.32 with only a limited drop-off to start the Monday session. We will see a bond auction in Italy today, however, so traders will be watching for any delayed reaction in the sale of treasuries.
The other main Eurozone story of the day is the beginning of the first EU summit meeting of this year, where the region’s finance ministers will be looking to finalize changes to the European Stability Mechanism (ESM) bailout agreement. Weekend discussions on the agreed upon loss levels for private holders of Greek debt were also seen as positive and all of these factors are helping support both the Euro and bond yield levels to star the week.
Macro data will be the main story in the US today, as the Personal Consumption Expenditure (PCE) figures will be released today. This is generally referred to as the Federal Reserve’s preferred inflation indicator (even more so than the Consumer Price Index), so today markets will be looking to assess whether or not the economic data continues to support the Fed’s view to maintain low interest rates. Eurozone data will come in the form of EU Consumer Confidence and the German CPI report, with will be released just after the Italian bond auction. German consumer inflation is expected to have risen 2.3 percent on a year on year basis.
In the UK, we saw from an MPC member in the Bank of England (Miles) who said that additional injections of quantitative easing stimulus for the region should not be taken for granted and that the central bank remains data dependent on the issue. Essentially, what this means is that inflation figures in the UK will be accompanied by analysts forecasts for the possibility of new QE this February and, as a result, these reports will likely lead to increases in volatility in both the FTSE 100 and in the GBP.
The NZD/USD is rolling over from the major long term resistance levels that we mentioned on Friday after failing at 0.8250. Follow through at this stage has been limited but we are now seeing support at 0.8180 coming under pressure, and a break and hourly close below this level will signal that a short term top is in place. Stronger support is seen at 0.8030 and a break here will accelerate losses and open up the sub-80 region.
Oil is starting to show some interesting technical formations (mostly bearish) as prices are now caught in a head and shoulders pattern within a larger downtrend and just ahead of some key long term Fibonacci support levels. The confluence of bearish patterns will be confirmed with a break of neckline support at 97.40 and suggest a much larger to at least 93.30, which is the next Fibonacci support level.