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By Gaurav Kashyap, Head of DGCX Desk, Alpari ME DMCC
Although the Euro closed just -0.5% against the US Dollar this past week, any upside momentum in the pair stalled in the run up to 1.3250 levels. With the Greek debt-swap talks dragging onto next week, we will continue to watch how the pair approaches what seems to be a rather stiff resistance level.
Europe bond auctions see lower yields
More bond auctions took place across Europe this week with the common theme being lower yields. On Wednesday, Portugal sold €1.5bn worth of short term notes, with borrowing costs dropping across the auction. The three-month bills sold at an average yield of 4.068%, down from the 4.346% average yield seen at a similar auction on January 18th. The average yield on the Portuguese six-month bill also dropped to 4.463% from 4.74%.
A deeper look at the results wouldn't suggest such a rosy picture however; the high demand that easily covered the offers was as a result of Portuguese banks taking advantage of cheap liquidity on offer by the ECB and reinvesting that liquidity into the short term bond auctions. In truth, Portugal still faces high premiums to lure investors due to increasing doubts that the nation can avoid a default scenario or debt restructuring solution similar to Greece's. In a longer term bond auction from this past Thursday, France sold €5.698bn of 10-year bonds at an average yield of 3.13%, down from an average yield of 3.29% paid at an auction in the beginning of January.
US jobs data puts prospect of QE on the backburner
The highlight on the economic calendar was Friday's US Nonfarm payroll reading which came out at a whopping 243K jobs new jobs, much higher than expectations of 140K. The December number was revised upwards to 203K from a previous reading of 200K. Manufacturing payrolls increased 50K, more than expectations of 12K, with the previous reading revised upwards to 32K from 23K. Private payrolls reported the strongest gains; with 257K new jobs being added, higher than expectations of 160K and the previous reading revised upwards to 220K from 212K. The overall unemployment rate decreased to 8.3% from 8.5% previously.
As impressive as the overall numbers look, perhaps the only dark spot on the report was the labor force participation rate dropping to 63.7%, a new 30 year low. This equates to approximately 1.2 million people leaving the US labor force in a period of one month. Friday's stellar jobs report will surely put any additional QE measures on the backburner for the time being and whether this will see the Dollar rally or risk markets rally will be seen in the week ahead.
North of the border, the Canadian Dollar continued its strong run against the US Dollar, marking its fourth consecutive week of gains against the Greenback despite a slew of weaker GDP and employment data out of Canada. GDP data from Tuesday showed that GDP weakened year-on-year (Act. 2.0%, Exp. 2.3%, Prev. 2.7%) and actually experienced negative growth month-on-month (Act. -0.1%, Exp. 0.2%, Prev. 0.0%).
The net change in employment came in at 2.3K, well below expectations of 24.5K while the unemployment rate increased one point to 7.6% from 7.5%. The weakening data from Canada saw USDCAD finding strong support around the 200 day moving average at 0.9964, however it was the NFP report which saw the pair break through that level to close the week at 0.9934.
Global equity markets see good end to January trading
And finally, this week in trading saw the close to a rather successful month of January for global equity markets. After kicking off 2012 on a rather weak note, stock markets reversed most of their losses to turn in a sterling performance for the first month of the year - the Dow Jones gained 3.36% in January, the largest gain during the first month of the year since 1994.
Similarly, Indian equity markets posted their best January performance in more than 17 years, with the Bombay Stock Exchange gaining 10.67% during January. With the US equity segment benefiting from a weakening US Dollar (during the same period the Dollar Index has fallen -1.22%), improving market sentiments as well as strong stock earnings, the Indian equity markets have also benefitted from increased foreign in-flows into the nation, slowing inflation, a lower reserve ratio requirement and a strengthening Indian Rupee.
Staff
