Daily FX Update, 20 January 2015

OVERNIGHT MARKET UPDATE:

·         The US was closed for the Martin Luther King Day Holiday.

·         Euro area construction output declined 0.1% m/m in November, but the annual pace of growth picked up to 2.2% from a downwardly revised 0.3% in October. The improvement was driven by the building sector, while civil engineering construction down 0.5% y/y.   

·         Euro area’s current account surplus for November declined from a year ago.  The current account surplus decreased to EUR 18.1 billion from EUR 19.5 billion in the same month last year. In October, the surplus was EUR 19.5 billion. The goods trade surplus eased to EUR 18.7 billion y/y, which rose slightly from EUR 18.4 billion seen in the previous month.  In the currency markets, positions were trimmed in an illiquid session. EUR rallied despite increased chatter of QE, with French President Hollande backtracking on comments that the “ECB will take the decision to buy sovereign debt”.     

·         Moves on sovereign bond markets were muted in subdued trading. German bund and UK gilt yields eased in anticipation of QE, while 10-year yields rose slightly in Italy and Spain.    

·         European equities gained for the third consecutive session, shrugging off earlier weakness from Chinese equities, with the Shanghai composite down close to 8% following an announced crackdown on margin lending.  

·         Oil was weaker on further supply side news. Iraq's oil minister announced the country is currently pumping around 4Mb/d, up from 3Mb/d in December last year. It also plans to export around 3.3Mb/d this year. Brent gave up all gains seen earlier in the week following news that US producers continue to idle a record number of drilling rigs. With supply remaining high, rallies are unlikely to hold. 

Gold was well supported although follow through buying after last week’s move by the Swiss National Bank was absent. A late selloff saw prices end the day lower.