Sentiment Higher After Better Than Expected Economic Data

• USD broadly weaker as sentiment is higher following tightening yield spreads in Europe, RBA minutes indicating solid domestic growth, positive German business confidence and better U.S. housing data. November housing starts rose 9.3% m/m to 685K (cons. 635K) and building permits unexpectedly advanced +5.7% to 681K (cons 635K). Global equities are mostly higher and U.S. stock futures are pointing to a positive start to the session with the S&P futures currently up about 1.22%. The Dollar Index is back below the 80.00 figure and sees the daily Tenkan line at around 79.40 which may provide support. The House of Representatives will vote on the payroll tax cut bill which was rescheduled for tonight after ongoing debate.

• EUR is advancing as yield spreads tighten following a successful Spanish auction. German business confidence also rose for the second consecutive month with the IFO business climate unexpectedly rising in December to 107.2 from the prior 106.6 (cons. 106.0). The current assessment component came in at 116.7 (cons. 116.0) and expectations figure was 98.4 (cons. 97.0). Spain sold 5.64B euro of short term debt at a stronger bid-to-cover ratio for the 3-mo at 2.86 vs. 2.85 at the previous auction. The euro rallied on the positive developments and currently trading around 1.3110, ahead of the 200-hour SMA which comes in at around 1.3125.

• GBP gained amid an increase in risk appetite and after the December CBI reported sales came out better than expected with a print of +9 (cons. -12 prior -19). BoE’s Bean says the central view is for flat output in Q4 of this year and Q1 of 2012. He noted that slowing inflation should help growth and that the U.K. economy is likely to return to growth in the second half of 2012. He also went on to say that the BoE has options if the Euro crisis worsens, stating that it can expand QE if needed. GBP/USD surged to towards the 1.57 figure and currently trades around 1.5675.

• JPY softer against most of the G10 currencies as risk sentiment advances and the safe haven JPY is sold. Japan’s all industry activity index gained +0.8% in October from the prior -0.7% decline. USD/JPY continues to drift sideways around the 78.00 figure – currently trading around 77.85/90.

• CAD slightly firmer on the back of higher equities, rising oil prices (WTI crude is currently higher by +1.37%) and amid inflation data. November CPI figures came out in line with expectations with the headline readings at 0.1% m/m and 2.9% y/y while the core readings showed 0.1% m/m and 2.1% y/y. USD/CAD declined towards the 1.03 figure and is currently around 1.0325.

• SEK mostly stronger except against the high betas AUD and NZD after the Riksbank cut interest rates by 25bps to 1.75% which was in line with the consensus. The bank said that the Swedish economy is slowing and noted that the economic outlook abroad deteriorated. It signaled that it may keep the policy rate unchanged over the next year. USD/SEK fell to test the 21-day SMA which is around the 6.86 level. Just below that sees the convergence of the daily Tenkan and Kijun lines.

• AUD is trading higher after the release of the RBA minutes which were much less dovish that expected. The minutes noted solid domestic growth which did not justify a rate cut but indicated concerns that Europe posed increasing downside risk to Australia. The Aussie has gained against the buck to test above parity where it is currently trading.