EUR/usd
Yesterday Fitch Ratings voiced its traditional commentary on the situation in Europe. The agency's spokesman said that the ratings of Spain, Italy, Belgium, Ireland, Slovenia and Cyprus might be lowered and also called Italy the country posing the greatest threat to the integrity of the euro area. The rating of France, as the agency claims, is unlikely to be reviewed this year. Sarkozy must have wiped the sweat off his brow. Italian affairs are by far more complicated. The country has a very large national debt (about 2 trln), which requires constant refinancing. Already in 2012 the country has to generate EUR 440 bln at auctions. Taking into account the difficulty with which the latter were held late last year and the increase in the ECB's balance, Europe, and in particular Italy, needs a different approach to handle this situation. What comes to mind now is an apt remark of Mr. Paulson, the head of the U.S. Treasury in 2008, when he, offering TARP, compared the government with the fire brigade rushing from one fire hazard to another. This approach proves to be ineffective, but it is widely practiced by Europe now. The case with each country is called unique and involves a variety of measures, which generally come too late. There is a dire need for the programme that will instill confidence in the markets as all the current problems in Italy have the confidence crisis at their basis. The idea about joint bonds, common fiscal rules and obligations seems to be the best way out for the EU. Otherwise, what kind of unity can there be? There is one more pillar of the policy that should be kept in mind. The ECB will hold a regular meeting tomorrow. The Bank is not expected to further cut the rates, although it would be reasonable under the current circumstances of the inflation slowdown and lending slump. If draghi displays courage and lowers the rate it will probably cause impulsive euro sales which will drive the pair to the 1.25 area.
GBP/USD
In the absence of its own important statistics the pound is mainly following the market demand for risky assets. A significant part of Tuesday was dominated by purchases that lifted the pound to the 1.55 area. But by the end of trading in America and at the beginning of the Asian session the sterling offset the slight increase it made earlier, coming back to 1.5450. Last night the price index data from the BRC were published; they marked the inflation decrease to 1.7% y / y, the lowest rate in eighteen months. Later today the markets will see data on the British trade balance which are of real interest. Most analysts are expecting the growth of the visible trade deficit to 8.4 billion pounds against 7.6 billion a month earlier and 8.45 billion in November 2010. Britain can spring both pleasant and unpleasant surprises on the issue and therefore cause the sterling volatility. The decline of the pound against the dollar risks breaking the line of support. If this happens the pair will face massive sales at the 1.54 level, breaking which the currency will have the only support around 1.53, where it has been repeatedly purchased since September 2010.
USD/JPY
Japanese politicians keep speaking about the need for structural reforms, but at the same time don't make any steps to implement them and just lazily blame another branch of government for being idle. Thus, in his today's speech BoJ's head Shirakawa noted that while the government has to carry out serious structural reforms, the only thing the Bank can do is to “buy time”, the price of which is getting higher. As you remember, the government has also got claims against the Bank accusing it of allowing deflation in the country and taking faint efforts to fight against the yen strengthening. Is there anyone in Japan to break this vicious circle? The country cannot rely on export any longer, as more and more manufacturers are moving their factories closer to the cheaper labour force (China, Thailand, etc.) or to consumers (USA, Europe). Meanwhile, the dollar/yen was supported around 77.70 and again came back to 77.90, which was really surprising from the short-term perspective, but at the same time was in line with the long-term view on the situation.
AUD/USD
Yesterday the Australian dollar was strengthening against the American one for the most part of the day, which was supported by the world demand for risky assets and by positive statistical data on Australia. The approved building permits jumped to 8.4% in November after a serious 14.8% decrease in September and a 10% decline in October. Such a great demand is attributed to the effect produced by the RBA's rate cuts in October and November. However, this is likely to come as nothing more than a mere decline correction with the general construction situation remaining poor. A lot of commentators point to the fact that housing in Australia is very expensive compared to other developed countries (with respect to an average income). In addition, this sector has not experienced the correction observed in Europe and North America in 2007-2010. So, such unsteady positive signs from the housing shouldn't be paid much attention to. It's better to follow the international trade and employment rates. Neither is up to the mark.
