FX open: Investors will look for comfort in fourth quarter US GDP data

Date: Friday 27 Jan 2012

The European trading session has opened with the main equity benchmarks showing average gains of 0.5%. Today markets are expected to focus on the preliminary fourth quarter GDP data in the United States. Market participants are looking for the data to prove that consumption is improving thanks to a better tone in the labour market.

In the fx market, we have the US dollar coming back after the decline which followed extended monetary easing from the Fed. The euro/dollar stopped climbing after reaching a five-week high yesterday, at 1.3184. Yesterday’s hammer candlestick formation has bearish implications. Meanwhile, the euro/yen has fallen from 102 to 101. The dollar/yen trades at 77.10 and cable remains near 1.57. The Aussie, Kiwi, and Loonie are consolidating versus the Yen.

In the sovereign debt markets, we have German to periphery bond differentials narrowing further. The Spanish risk premium now stands at 333 basis points with the Italian one at 420bp. The yield on Bunds is at 1.88% with the French 10-year bond yield at 3.12%, the Spanish 10-year at 5.21% and the Italian 10-year at 6.08%. Meanwhile, the US 10-year Treasury bond is retreating to 1.94% and the 10-year Gilt is at 2.1%.

On the macroeconomic calendar, Japan released CPI data for December that shows deflation but which came out in line with expectations. Retail sales, on the other hand, surprised to the upside. In Spain, the unemployment rate for the fourth quarter rose to 22.85% from 21.52%. Coming up, money supply figures for December in the Eurozone. In the United States, preliminary fourth quarter GDP data and the consumer confidence index from the University of Michigan are due out this afternoon.

FM

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