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EUR/USDThe Eurozone sovereign debt crisis is set to continue to dominate the price action this week after the Troika announced that it now expectd that Greek debt will peak at 186% of GDP in 2013 and decline only to 152% of GDP by end-2020 and to 130% of GDP by end-2030. As a result, it now looks increasingly likely that the initially proposed 21% PSI level will be revised sharply higher. According to latest reports, officials are considering options with writedowns of as much as 50%, while others have called for upfront bond exchanges into either AAA rated bonds from the EFSF or new 30-year Greek government debt. Talks over the weekend also centred on the EFSF, which given the opposition by the ECB and Germany is unlikely to get a banking license which the French government has been calling for since the day one. Finally, the latest CFTC report shows that speculators increased their net short EUR position to 77,720 contracts from net shorts of 73,795 the previous week, while the value of the USD’s net long position rose to USD 14.86bln in the week ended Oct. Full article…

***Economic Data***
– (PH) Philippines Nov Overseas Remittances: $1.8B v $1.8B prior; Y/Y: 10.6 v 6.2% prior
– (EU) ECB: €2.4B borrowed in Overnight Loan Facility vs €1.5B prior; €493.3B (fresh record highs) parked in Deposit Facility vs. €489.9B prior
– (IN) India Dec Monthly Wholesale Prices Y/Y: 7.5% v 7.4%e
– (DE) Germany Dec Wholesale Price Index M/M: 0.0% v 0.7% prior; Y/Y: 3.0% v 4.9% prior
– (CZ) Czech Nov Export Price Index Y/Y: 5.8% v 4.5% prior; Y/Y: 7.6% v 6.9% prior
– (CZ) Czech Dec PPI Industrial M/M: 0.1% v 0.2%e; Y/Y: 4.6 v 4.7%e
– (DK) Denmark Dec Wholesale Prices M/M: 0.1 v 0.1% prior; Y/Y: 4.1% v 5.2% prior
– (TR) Turkey Dec Consumer Confidence: 92.0 v 91.0 prior
– (TR) Turkey Oct Unemployment Rate: 9.1% v 8.8% prior
– (CH) Swiss Dec Producer & Import Prices M/M: +0.3% v -0.1%e; Y/Y: -2.3% v -2.8%e
– (AT) Austria Dec Consumer Price Index M/M: 0.2% v 0.1% prior. Y/Y: 3.2% v 3.6% prior
– (NO) Norway Dec Trade Balance (NOK): 41.2B v 35.5B prior
– (IT) Italy Dec Final CPI (NIC incl. Full article…

Similar to the euro, the British pound will likely weaken against the US dollar amid risk aversion in the first half of the year. Against the euro, the pound had gained for 3 consecutive years since 2009 although the magnitude has been declining. In 2011, EURGBP has been on a down trend since the EU summit as pessimism that EU finance leaders would not be able to derive effective measures to resolve the sovereign debt crisis has made sterling a safe-haven asset in the short-term. We do not expect this to continue this year as the UK has its own fiscal and economic problems to struggle. The disaster these might cause is not less than the debt problems in the17-nation region. An option to alleviate the economic problems would be monetary easing. Without the need of majority vote, the BOE may deliver more dovish stance on the monetary outlook than the ECB in 2012. This would then weaken the British pound.

Although UK’s GDP grew +0.5% y/y in 3Q11 after climbing only +0.1% a quarter ago, the underlying trend is not at all encouraging.

Full article…

Copper is up from its multi-month low at the 299.40, but the gains are seen as a correction (wave 4 in the fall from the Aug 1st high at 454.00), and with eventual new lows below 299.40 after (within wave 5, see daily chart below).  Note that copper has gotten a lot of attention recently due to its relationship with economic activity in China (and recent concerns about a slowdown).  Also, another downleg in copper fits the view of another potential selloff in “risk” markets, and upleg in the $ (see earlier sent email).  Currently, the market is down from the Oct 17th high at 346.35 (38% retracement of wave 3), potentially completing its multi-week correction, and suggesting new lows ahead.  So for now want to be short copper and would sell here (cur at 320.65).  But there is risk that new lows below 299.40 may be limited (see longer term below), so will use an aggressive stop on a close above the bearish trendline from early Sept (currently at 342.50/343.50).  Note too that even a break above there would not abort the view of new lows, but suggest a more extended period of consolidating first, and would be looking to resell higher if taken out.  Nearby support is seen at 316.50/317.50. Full article…

CEE markets were generally disappointed after the ECB did not announce any sizeable target for buying eurozone bonds. Currencies weakened and yields rose accross the region and as usual, the forint was the victim of this again. The EUR/HUF pair dropped from 300/€ to 308/€ by this morning and yields rose about 20-25bps accross the curve, which means that the long-end got close to 9.00%.

Third quarter growth figures were released in the Czech Republic and Hungary. The Q/Q data was strong for Hungary at 0.5%, while it was -0.1% Q/Q for the Czech Republic. In terms of the Y/Y change, Hungary remained unchanged from the preliminary fact at 1.4%, while the Czech figure was revised lower to 1.2% Y/Y from 1.5% Y/Y. There were also foreign trade data releases in Hungary and Slovakia.

In case of the former, the data was in line with expectations at a monthly surplus of €497m, while it exceeded expectations by large with €570m surplus in Slovakia due to double digit rise of export and a broadly unchanged import. Full article…

Dollar strengthened across the board last week as risk aversion dominated the markets on a serious of bad news from Europe, including poor bond auctions, surging yields and downgrades. DOW, FTSE and DAX all suffered sharp selloff and the developments turned near term outlook bearish and raised the prospect of new 2011 low before the year closes. A few weeks ago, we talked about the remote possibility of head and shoulder bottom formation in the dollar index and the index is now pressing the neckline resistance. Among the major currencies, Aussie was the weakest on deteriorating economy outlook in China. But Euro was taking up the weakest spot towards the end of the week.

Germany’s bond auction was the highlight of the week. The German government managed to sell just of EUR 3.644b of 10 year bunds today, way short of it’s maximum target of EUR 6b. Markets saw as a deep mistrust of Euro, which was even manifested in weak demand for German bunds. Spain Treasury sold EUR 2.978 of three- and six-month bills at sharply higher yields.

Full article…