Forex Flash: Risk on (and on, and on) – Societe Generale

By FXstreet.com | January 10, 2013 AAA

FXstreet.com (Barcelona) - Kit Juckes, Global Head of FX Strategy at Societe Generale has taken a look at the morning landscape ahead of today's hotly anticipated Central Bank meetings and notes that Equities have advanced, Chinese exports have grown, the Yen has fallen and risk is 'on'.

He begins by stating the the god of risk is in his firmament today, thanks in part to a jump in Chinese exports and in China's trade surplus (exports up 14.1% y/y, surplus up to $31.6bn). He notes that China's surplus in 2012 was its biggest since 2008, with exports over $2trn in the year, up from $1.2trn in 2009. he writes, "It's been a slow start to the year, but the US avoided the cliff and released decent data, Japan is set to ease, China is recovering and Spanish bond yields are at their lowest levels since March."

Looking to Europe, Juckes feels that there is little chance of a change in ECB policy rates today, but Draghi's tone will be in focus. More important for the Euro though, could be demand for Spanish debt at the auction this morning. Seen as a bellwether for the periphery, he notes that shorter dates Spanish debt is the single biggest driver of the Euro's performance at the moment. He finishes by adding, "There is no indication of a lack of demand and if spreads tighten, I expect a re-test of the upper end of the current EURUSD 1.2950-1.33 range, and a knock-on to further strength for other European currencies - that is to say, look for GBPUSD to find support at 1.60, USDSEK, USDRUB, USDTRY and USDPLN will all find willing sellers."

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