Mid-Day Report: EUR/USD Jumps Following Spain Auction, Sign of Near Term Reversal

Euro strengthens broadly today a solid Spain auction as well as on optimism on Greece. The break of 1.2882 minor resistance in EUR/USD aligns it's outlook with USD/CHF and GBP/USD. We're now looking at the prospect that the correction that starts back in September is already finished and EUR/USD could head back to 1.3 level in near term. Spain sold nearly EUR 3.88b in bonds today, well above maximum target of EUR 3.5b. 2015 bonds was sold with yield at 3.617%, lower than 3.660% in November's auction. The five year bond was sold with yield at 4.477%, while 2012 bonds was sold at 5.517%. This is a prefunding auction for 2013 as 2012 financing target was already met earlier this month.

Eurozone PMI data were weak with PMI manufacturing improved to 46.2 in November but services PMI dropped to 45.7. German PMI manufacturing rose to 46.8 but PMI services dropped to 48. French PMMI manufacturing rose to 44.7 while services PMI also rose to 46.1. All readings are staying well in contraction region. Nonetheless, Euro has little reaction to the data.

So far, markets seems to be rather unworried about the delay as most analysts expect that Greece will eventually get its bailout fund. A further meeting is scheduled for November 26, next Monday, between Eurozone finance minister on the issue. Indeed, German Chancellor Merkel said yesterday that there are "chances to get a solution on Monday". Finance minister Schaeuble also said that the leaders have agreed that the financing gap can be closed largely through a debt buyback program".

Yen's selloff also continues. Yesterday, LDP leader Abe, the most likely candidate to succeed Noda as the next prime minister after December 16 election, pledged to achieve 3% economic growth and set a 2% inflation target. Analysts are perceiving the targets as implication of extremely aggressive policies that go beyond quantitative easing, but also a targeted yen weakness policy. There were even talk that USD/JPY could go back to above 100 level should LDP be follow through in the implementation of the policies. In any case, the Japanese yen will likely remain weak in the near term.

The HSBC china manufacturing PMI rose to 50.4 in November, comparing to 49.5 in October. That's the first expansion reading in 13 months and signals mild growth in the sector. HSBC said in a statement that the reading confirms recovery continues to gain momentum towards the year end, even though it's still the early stage and remains fragile. It said that the data still calls for continuation of policy easing.

IMOH, Patrick E.
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