FOREX: Euro Threatened as Irish Government Faces Election Loss

Key Overnight Developments

Swiss Franc Underperforms as Korea Conflict Fears Subside Australian Dollar Weaker as Prices Retrace NY Session Gains Japan’s Trade Balance Surplus Widens as Imports Soften Critical Levels

The Euro and the British Pound kept to narrow ranges in Asian trade, with sterling spiking higher only late into the session after the Bank of England’s Andrew Sentence – the standby hawk on the rate-setting MPC committee – said policymakers need to gradually raise interest rates. We remain long the US Dollar against the Euro, Japanese Yen and New Zealand Dollar.

Asia Session Highlights

Corporate Service Price (YoY) (OCT)

Merchandise Trade Balance Total (Yen) (OCT)

Adjusted Merchandise Trade Balance (Yen) (OCT)

Merchandise Trade Exports (YoY) (OCT)

Merchandise Trade Imports (YoY) (OCT)

BOJ’s Nakamura Speaks on Japanese Economy

Private Capital Expenditure (3Q)

Currency markets saw quiet trade in overnight hours, with the Swiss Franc underperforming the majors having surged earlier in the week as geopolitical fears eased amid fading concerns about an escalation of violence between the Koreas. The Australian Dollar also tipped lower, retracing some of its recent gains having followed Wall Street higher in North American trade.

Japan’s Merchandise Trade Balance surplus undershot expectations, printing at 821.9 billion yen in October. While this marks an improvement in the headline reading from the previous month, the outcome seems far from encouraging considering it comes courtesy of the weakest import growth in 10 months as opposed to robust overseas sales. Indeed, exports grew at an annual pace of just 7.8 percent, the weakest since November 2009. Given strongest Yen in over a decade, which ought to boost imports, such dismal figures seem to point to little more than the anemic state of Japanese domestic demand, reinforcing deflationary pressure and keeping the perennial low-yielder’s funding currency status firmly intact for the foreseeable future.

Euro Session: What to Expect

French Consumer Confidence Indicator (NOV)

Italian Business Confidence (NOV)

All eyes are focused on Ireland, with the ruling Fianna Fáil party expected to do poorly in a by-election in Donegal South West. This would reduce the government’s majority in the lower house of parliament (the Dáil) from three to two seats, making the possibility that the current administration will lose support before the budget vote on December 7 more likely. While the markets have arguably priced in the loss already considering it has been well-telegraphed in recent polls, a particularly skewed outcome in favor of the opposition may stoke risk aversion and compound selling pressure on the Euro.

The data docket looks lackluster, with third-quarter Swiss Employment figures amounting to the only bit of notable event risk. Turning to sentiment, stock index futures tracking the major European bourses are ticking higher ahead of the opening bell, hinting risk-correlated currencies may find a bit of support, absent shocking news out of Ireland of course.

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