Sentiment Improves Amid ECB Bond Purchases

USD declining against all of the G10 as sentiment improved amid speculation that the ECB is buying bonds of Spain and Italy today. Sovereign yields are lower and equities are trading with a positive tone. NY Fed President Dudley delivered a speech this morning and noted that though the US economy faces ‘significant downside risks’, the fed is doing ‘everything’ in its power to spur growth. The Dollar Index is back inside of the daily cloud and sees the Tenkan line come in around 77.50 as potential support. The only data of note on the calendar is Oct. leading indicators which are expected at +0.6% (prior +0.2%) and due out at 1000ET.

EUR mostly firmer against the majors as sovereign bond yields ease on speculation of ECB buying debt today. ECB President Draghi urged governments to act in order to implement EFSF reforms while ECB Executive Board member Gonzalez-Paramo said it’s not the central bank’s role to act as a lender of last resort to governments. Reports from Germany indicate that the ECB has agreed to a weekly limit of 20B euros on sovereign bond purchases. In Italy, PM Monti won a confidence vote in the Senate with 281 out of 306 votes and the lower chamber is scheduled to vote later today. EUR/USD rose above the 1.36 figure briefly before finding short term resistance around the 200-hour SMA and correcting to current levels of around 1.3575.

JPY lower across the board except against the buck as markets shift out of safe havens. USD/JPY is trading below the 55-day SMA and cloud base as it continues to retrace the late Oct. intervention. GBP/JPY is slightly higher but faces resistance around the 55-day SMA which currently comes in around the 121.55/60 level.

GBP stronger on the back of improving risk sentiment with GBP/USD nearing the 1.59 figure. BoE’s Weale was on the wires and said that there is a ‘very strong case’ for additional stimulus which may be implemented in February ‘if things evolve as the forecasts suggest’. He also noted that its ‘perfectly possible’ the UK economy is already contracting.

CAD supported by stronger than expected CPI and leading indicators. Oct. CPI showed higher than anticipated inflation with the headline coming in at 2.9% y/y (cons. 2.8%) and 0.2% m/m (cons. 0.1%). The BOC core readings were 0.3% m/m (cons. 0.1%) and 2.1% y/y (cons. 1.9%). Oil is also higher on the day which is favorable for the Loonie. USD/CAD was rejected from the 1.03 figure and currently trading around 1.0240. The pair recently found support around the 200-hour sma which comes in just below the 1.02 figure.