Mid-Day Report: Euro Soft after Weak Spain Bond Sales, SNB on Hold, Dollar Steady

Euro remains soft as Spain’s final bond sales this year missed target. The country sold EUR 1.78b of 10-year bonds and EUR 0.62b of 15- year bonds today. The total of EUR 2.4b missed Treasury’s maximum target of EUR 3b. Average yields were also higher than previous sales. The disappointment was driven by Moody’s warning it would downgrade Spain’s Aa1 credit rating. Meanwhile, investors worried that EU leaders would fail to agree on effective measures to stem contagion in the Summit in Brussels this week. Meanwhile, Eurozone PMI manufacturing improved to 56.8 in November but PMI services deteriorated to 53.7. CPI was finalized at 0.1% mom, 1.9% yoy in November with core CPI up 1.1% yoy.

On the other hand, dollar remains steady in early US session and is probably waiting for developments in bond markets to provide guidance. Data from US saw initial jobless claims improved to 420k. Current account deficit at -127.2b. Housing starts at 555k in November while building permits missed expectations and dropped to 530k.

As expected the SNB left the 3-month LIBOR range at 0-0.75% as appreciation in Swiss franc has weakened the country’s export-led economic growth. Meanwhile, the central bank cut its inflation outlook for 2012 and 1H13 but raised the 2011 forecast modestly. Growth estimates stayed unchanged at +2.5% and +1.5% for 2010 and 2011 respectively. More in SNB Left Target Rate Unchanged To Curb Franc Appreciation. Swiss industrial production rose 1.8% qoq, 5.8% yoy in Q3.

Sterling is lifted mildly after BoE’s November inflation attitudes survey showed that the public are expecting as much as 3.9% inflation over the next 12 months, sharply higher than 3.4% figure in August’s survey, and being the higher figure since August 2008. Two years inflation expectation is at 3.2% while five years expectation at 3.3%. There is also some support from retail sales data which showed 0.3% mom growth in November. Sales with Auto fuel also rose 0.3% mom. But after all, outlook for BoE is very uncertain as the bank is still facing high inflation pressure, while the economic recovery is weak with high unemployment rate.

Daily Pivots: (S1) 1.3154; (P) 1.3267 (R1) 1.3327; More.

At this moment, EUR/USD is still holding above 1.3164 support and thus, we’re staying neutral. Note that break of 1.3164 will confirm that recovery from 1.2969 has completed at 1.3496 already. Such development will also indicate that fall from 1.4281 is not over. In such case, intraday bias will be flipped back to the downside for 1.2969 and below. Nevertheless, before breaking 1.3164, rebound from 1.2969 could still extend further and above 1.3496 will target 1.3785 resistance and above.

In the bigger picture, outlook is a bit unclear for the moment as rebound from 1.2969 lacked sustainability and was limited by 55 days EMA. On the downside, below 1.2969 will revive the case that rebound from 1.1875 is completed at 1.4281 already. In such case, correction from 1.6039 should still be in progress for another low below 1.1875 before completion. On the upside, above 1.3785 resistance will bolster the bullish case that rise from 1.1875 is resuming for another high above 1.4281 and revive the case that medium term correction from 1.6039 is already finished at 1.1875.

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