The Euro remains heavy on its lows with little bounce seen overnight after the negative response to the German Bond auction conducted yesterday. Germany’s inability to attract treasury investors is leading many to believe that the country’s debt problems are worse than previously thought and adding to this is the continual conversation about possible downgrades in France’s AAA credit rating. Bond yields in each of the core (AAA rated) Eurozone economies are now seen as being affected by the current crisis and this is contributing to the weakness we are seeing in the region’s equity markets.
Because of these factors, macro data will get more of a central focus today as third quarter GDP in Germany will be released, as will the IFO survey and these reports will give investors some guidance for assessing the true state of Europe’s largest economy. Recently, this type of data has been mostly ignored but now with the US on Thanksgiving holiday, the lower levels of market liquidity could lead to price volatility into these releases. Market expectations have been revised lower more than once for this data, so it will be interesting to see what type of growth will need to be seen in order for markets to show some encouragement.
In the UK, Bank of England meeting minutes from its November monetary policy meeting were released yesterday and showed a unanimous vote to keep its interest rate and asset purchases programs in place, along with a general expectation that inflation levels will stabilize throughout 2012. The GBP did see a bounce after the release (during a session mostly dominated by US Dollar strength), as there was little suggestion that MPC members are biased toward additional injections of quantitative easing stimulus (at least from a short term perspective).
UK macro data will also see the release of the third quarter GDP report (which is expected to show growth of 0.5% on a quarterly basis) but this release is expected to only have a peripheral effect with market attention squarely focused on developments in the Eurozone and the release of today’s German macro data. Even if investors remain on the sidelines today, these releases will likely be the guiding influence when market volumes return to normal levels after the holiday week comes to a close, so the results of these releases should be given notice.
The USD/JPY is finally starting to show some lift as prices have found support in the 76.55 region. The short term nature of the rally does throw some doubt on the bullish argument for the pair but if prices can break above support turned resistance at 7.25, we should see another test of the hourly highs at 77.60. Buying dips is the preferred strategy, first support comes in at 77.
The S&P 500 is showing some sharp declines after meeting the 1290 resistance level and prices have since retraced nearly 61.8% of the last daily rally. The severity of the drop does suggest that prices will need a period of consolidation before making any extreme moves lower but a break of the Fib support will be very ominous for the long term view. First resistance comes in at 1180.