Eurozone lifted by Italian Short Term T-Bill Auctions from Santa.

"Dec. 28 (Bloomberg) --Italy sold 9 billion euros ($11.8 billion) of six-month Treasury bills, meeting its target, and borrowing costs plunged after the ECB provided euro-region lenders with unlimited three-year loans last week.

The Rome-based Treasury sold the 179-day bills at a rate of 3.251 percent, down from a 14-year-high of 6.504 percent at the last auction of similar-maturity securities on Nov. 25. Investors bid for 1.7 times the amount offered, up from 1.5 times last month."
Full link: Here

Well, the auction on the italian short term T-bills are more sought after as it is less risky and yields remain attractive as investors tends to take a shorter term view. In my opinion, the longer term bonds of EUR8.5 billions auction tomorrow will likely face a major challenge and expect a higher risk premium if it wants to attracts takers. Eurozone long term view remains bleak.  

However, do take note that the ECB’s balance sheet has soared to a record EUR2.73 trillion after it lent financial institutions more money last week to provide liquidity to the economy. And this caused the lending to european banks to jumped by EUR214 billion to EUR879 billion last week as revealed by the ECB. This resulted in weakening of EUR against most major currencies and stocks fell, as the announcement highlighted risks from Europe’s debt crisis. Eurozone remains thinly traded during this holiday seasons. Volatility likely to pick up on 2nd week of 2012.

I am still bearish on EUR, i am predicting another technical default by another european state. Greek problem will continue to persist. The european debt crisis is far more widespread than what is reported in the news. I do not believe in austerity measures to get the country out of debt but instead drag the economy faster into a recession. Jobless rate across the eurozone is at a record high.

EUR/USD is currently supported at $1.30. We will likely see EUR/USD to continue its bearish momentum and like to hit $1.28 and potentially $1.25.

Japan will face their biggest challenge in 2012 - JPY likely to hit record high

JPY will likely hit another record high in the Q1 of 2012. Especially during March, due to its financial year closure in April. Additional pressures that are pushing JPY higher is also due to the inherent risk of the current instability of the Eurozone and US. Sentiments throught the Tankan report has shown that Japan business confidence has also been a record low and wants BOJ to play a more active role in stabilizing the strong JPY which have hurt export to a critical point.
JPY and AUD has always been the central attraction of carry trade. With the strengthening of the USD and weakening of EUR, we are likely to see more unwinding of USD carry trade during March repatriation of earnings from Japanese MNCs back to Japan. With US facing their own set of debt problems, they will most likely be  adopting some form of QE which will likely to drive USD/JPY to breach its key support level at $76. I am forecasting USD/JPY to hit a record high of $70. and EUR/JPY at $95 with key support level at $100.

However, word of cautious is that BOJ has commited to intervene at all cost to keep JPY stablized. I believe, BOJ will take certain strategic measures during Feb-Mar to ensure the stability of its currency.

Meanwhile, It will be interesting to see if the January Effect still stands after the Dodd-Frank Act.