EUR Shorts Dominate Play

Market focus Stateside will be on Hurricane Sandy and not on trading books. With Sandy barreling towards the US’s North East coast, has pressured President Obama to sign emergency declarations for several states, including New York. Some low-lying NY boroughs have since come under evacuation orders by Mayor Bloomberg. All US stock and options markets will be closed today and this closure could stretch into tomorrow. European Insurers are already trading in the red as a result of this natural phenomenon and forcing European bourses under water this morning.

It seems that Greece is no closer to an agreement with Troika on reform measures to unlock the next tranche of funds that this country desperately wants. Reports over the weekend suggest that the auditors will demand a further 150 additional reforms. Some of the creditor demands include the loosening of the hiring/firing laws, changes on the minimum wage rule and lifting of certain professional privileges. Even thought the markets switch from Spain to Greece interchangeably for EUR weakness excuses, Spain remains the dominant factor for most of the single currency slippage. This Wednesday, Greece will be outlining the progress it is making on the above highlighted reforms.

The markets know that it will be Spain that will allow the OMT ECB program to be triggered. This triggered act will of course be testing the ECB’s willingness to do “whatever it takes.” Despite some positive signs of stabilization and even some modest improvement of foreign appetite for Spanish debt product, Euro growth risks remain. Any growth slippage will only force the peripherals economies to contract further. In the end, this vicious circle will make it more difficult for Spain and Greece to achieve its fiscal targets, again setting off market alarms.

On the Euro front, it is a light week for data, with only the final revision of the October PMI data amongst first tier data releases. Analysts do not expect any revision changes to the headline print. The release will manage to provide some insight into the state of the manufacturing sector in the periphery. The market gets to see Q3 GDP data for Spain early this week (consensus is looking for -0.4% q/q contraction). Any downside surprises to activity will only be putting more pressure on Spain to formally seek ESM aid. To the market it never has been about “if,” but about “when” for Spain. A scenario like this will make the EUR bears even happier.

For the “big” dollar, investors are waiting on the arrival of national monthly data for October. Their attention will be drawn to manufacturing ISM on Thursday and the granddaddy of economic releases, NFP, on Friday. Analysts seem to be expecting nothing else, but the reconfirmation of “steady growth at subdued levels.” Market will be looking for an unchanged ISM manufacturing headline and a jobs report with another subdued +125k rise in payrolls (consistent with the six months landscape). However, do not be surprised to see the unemployment rate tick a tad higher, last months pullback was very much an eye opener and big talking point. This subdued growth should be good for risk.

Market will be focusing on the BoJ tomorrow. Everyone and their mother will be expecting Japan’s policymakers to increase the size of the AP program. The number of +¥20t is being loosely thrown around. The BoJ is also expected to extend the time period for purchases to run through the end of 2014 (a one year extension). This combination, an AP increase and time, should result in an incremental increase in the pace of purchases. The market will wonder if Japan’s balance sheet is expected to balloon like the Fed’s or BoE? Or will incremental easing aggressively undermine Yen’s value? In a global environment of accommodative monetary policy any currency will struggle to weaken in the longer term. To date, M&A activity has been supporting USD/JPY, but the stops are beginning to congregate below 79.50-30.

EUR shorts continue to dominate play, eying a new target of 1.2825’ish. Many individuals’ shorts have been moving their stops lower, to lock in some profit at least. Do not be surprised to see some intermittent EUR spikes higher to trigger some of these stops, mostly out of boredom and expected weather liquidity constraints later in the day. Below last Friday’s lows (1.2884) will make it rather interesting.

Other Links:
Netherlands and Germany Unsure About Greece