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Top Stories

• German GDP for 2011 in line at 3.0%
• UK Trade Deficits worsens
• Nikkei up 0.30% Europe up 0.05%
• Oil at $102/bbl
• Gold continues climb t0 $1645/oz.

Overnight Eco

• JPY Leading Index (NOV P) 92.9% vs. 92.9%
• EUR German Real GDP Growth (2011) 3.0%
• GBP Visible Trade Balance (Pounds) (NOV) -8.6B vs. -8.3B

Event Risk on Tap

• USD MBA Mortgage Applications (JAN 6)

Price Action

• USD/JPY quiet just below 77.00
• AUD/USD rallies above 1.0300
• GBP/USD steady at 1.5460 despite weak trade data
• EUR/USD rallies towards 1.2800 on ME demand

With little economic data on the docket today currencies spent a very quiet night of trade contained to relatively tight ranges. The EUR/USD spiked to 1.2885 at the start of European session trade on demand from Middle East investors but saw the rally fizzle as trading progressed. Cable in the meantime was driven lower by disappointing UK trade data which saw the deficit widen above the -8B GBP mark.

UK Trade deficit for November expanded to -8.6B GBP versus forecast of -7.9B as oil imports surged to 4.62B – the highest value on record. UK also saw a sharp decline in exports which decreased by -1.5% amidst the turmoil that gripped European credit markets that month. Nevertheless, analysts  expect the data for December to improve given the significant rise in the export subcomponent of Manufacturing PMI. Cable however came under some selling pressure in the wake of the release with GBP/USD dropping more than 50 off session highs. The pair continues to face stiff resistance at the 1.5500 level and if risk flows turn negative into the North American open  it could test the 1.5400 figure as the day progresses.

In Europe meanwhile the German GDP printed in line at 3% as forecast. Private consumption and strong export growth helped to drive German expansion in 2011. Exports increased at an impressive 8.2% rate but this was still markedly less than the 13.7% growth in 2010. Overall the data for 2011 shows that German economic recovery continues to broaden and the latest employment data  indicates that the expansion remains on track.

Going forward, analysts are much less optimistic about the prospects for 2012 with several market players calling for German to GDP to expand at a meager 0.6% in the wake of the turmoil plaguing the EZ sovereign credit markets. For now however there is little evidence to suggest that German growth will contract so sharply, and if the credit markets in the region stabilize, the German economy could surprise to the upside helping to lift the performance of EZ as a whole.

In a further sign of investor confidence Germany was able to sell 5 year bunds below the 1% level for the first time. The bid to cover ratio was a respectable 2.8 indicating that investors were willing to pay for safety. Yields in the periphery improved as well with Italian 10 year BTPs dipping below the key 7% as the morning progressed.

With no major economic releases scheduled for North American open, trading may remain lackluster for the rest of the day. The EUR/USD appears to have found an equilibrium at the 1.2750 level but traders remain reluctant to move the pair either way until they get more visibility from the ECB press conference later in the week. For now, risk FX is treading water but the calm is unlikely to last.   

FX Upcoming

Currency	GMT	EST	Release	Expected	Prior
USD	12:00	7:00	MBA Mortgage Applications (JAN 6)		-4.1%

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.