With only Italian CPI release on tap as US celebrates Martin Luther King day, the FX markets are having one of the narrowest sessions in weeks with prices trading listlessly in a 30 pip range for most of the night. With no news-flow and very light order-flow on the books, dealers are likely positioning for tomorrow's important TICS report due 14:00 GMT. Unlike the last months small surplus of only $48 Billion, the report for November is expected to rebound to $55 Billion. This number would still be short of covering the $60 Billion Trade Balance deficit reported last week, but may be viewed as "close enough" by the FX market to generate further dollar support.
If dollar bulls can indeed rally the greenback then our "1.30 or bust" scenario is likely to happen this week as momentum would push the pair below the psychologically important 1.30 level and trigger the series of stops clustered at the figure. If however, the TICS data is materially weaker - and this is a distinct possibility given the recent heavy reliance on Central Bank rather than private capital inflows - then the euro may rally right back to last week's highs leaving all of the momentum chasers deeply frustrated.
Meanwhile in Japan, the Consumer Confidence numbers were significantly lower than last month's figures (44.3 vs. 47 projected) indicating that the rebound in Japanese economy has yet to have an impact on consumers. Most disturbing of all were the income growth expectation numbers which slipped to the lowest value of the year hitting 42. Taken together with the soft Eco Watchers survey numbers released on Friday, the data puts a big question mark on the markets most recent assumption that Japan's "soft patch" slowdown of last summer/early fall is behind it.
On the positive side, at least for the Japanese monetary authorities contemplating intervention, is the USD/JPY recovery from yearly lows of 101.67 set earlier tonight fueled by the softer economic numbers. The move forestalled any concerns of BOJ intervention just as the pair approached dangerously close to the 100 label.
FX Spot Overnight
EUR dips below 3100 in very quiet trade
JPY set a new yearly low but bounces back as eco data is soft
GBP loses the 8700 figure as downward pressure persists
CHF lackluster as euro trading 1770-1800