Market Analysis Forex - 06 january 2012

All hell broke loose yesterday in the Eurozone as mounting fears of a Greek default and weakness in Italian Bank UniCredit dragged markets lower. The Italian MIB was down -3.79% and the Spanish IBEX was down -3.01%. EURUSD also fell below the 1.28 handle, trading as low as 1.2769 before pulling back. The French bond auction was disastrous compared with the previous month as they failed to sell the targeted €8 billion in bonds. The bid-to-cover ratio was half the level of a month back, showing investors are continuing to shun Eurozone debt. The failed Hungarian 1-year bill auction is also weighing heavily on the European markets as Austrian exposure puts the Eurozone core at risk. The bills are presently yielding approximately 9.96%, 2% higher than the previous month as the auction sold 10 billion forint less than targeted.
As the Euro hit a 15-month low against the dollar, Asian Stocks reacted by ticking lower during the overnight session as the Nikkei, Hang Seng, and ASX are each down -1.40%, -1.07%, and -0.67%. European fundamentals continue to affect Asian stocks and currencies as a global slowdown highlights investor's momentary bias towards safety assets. The dollar rose against most Asian currencies with the worst performers including the South Korean Won which has lost -0.61% against the dollar and the Aussie Dollar which is trading down -0.20%. Gold continued its 6-day rally, climbing 4% just this week to $1624.31 per ounce, marking its best performance since October.
U.S. Markets ended the day mixed as the technology-weighted Nasdaq pushed higher, gaining 0.81% and the S&P 500 rose 0.29%. The Dow Jones fell marginally by -0.02%. Economic data beat expectations as the ADP Nonfarm Employment Change came in at 325K versus 175K expected and Initial Jobless claims fell to 372K from 387K prior. Consumer Confidence continued to rise as stronger jobs data improved American's outlook. The one weak spot in the employment data was the Continuing Claims figure that crept slightly higher than forecast. Today is the first major U.S. economic release of 2012 with the Nonfarm Payrolls figure, expected to improve to 150K jobs added versus 120K recorded previously. However, the Unemployment Rate is forecast to rise slightly from 8.60% to 8.70%.

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