CZK: Koruna Appreciates, Current-Account Surplus Wider Than Expected

• The USD was under pressure at the NY/Asia Pac cross over, as headlines crossed from Bloomberg that Trump economic advisers were considering/studying a gradual tariff hike approach. The more optimistic price action for equities has provided weakness for both the greenback and the Japanese Yen, with most recent reports of a potential Israel/Hamas ceasefire assisting this sentiment.
• As such, cross/JPY is extending its recovery, with the likes of EURJPY and AUDJPY rising half a percent on Tuesday to turn positive on the week despite Monday’s sharp initial selloff.
• The recent move down in EURJPY appears technically corrective, however the cross did breach support at 160.91, the Jan 2 low. The next support to watch is 159.51, 61.8% of the Dec 3 - 30 bull cycle. A reversal higher would signal the end of the corrective cycle and refocus attention on 164.90, the Dec 30 high. First resistance is at 162.43, the 20-day EMA.
• NZD outperformance stands out today, and appears to be driven by the positive signals from the Q4 NZIER Business Opinion Survey and its influence on OIS pricing, which is tempering expectations for RBNZ easing. To sum up, the survey showed that a net 16% of businesses expect the economy to improve, vs 1% expecting it to get worse in Q3.
• NZDUSD has risen back above 0.5600 and will look to the 20-day EMA as initial resistance, intersecting today at 0.5641. NZDJPY is one of the best performing crosses, currently up 0.80% on the session.
• GBP once again underperforms, with cable down 0.15% on the day and notably 70 pips off the overnight 1.2250 highs. EURGBP is currently testing the Monday highs of 0.8424 having recently undermined the recent bearish theme, suggesting scope for a stronger short-term recovery. The cross will now target 0.8448, the Oct 31 high, and 0.8494, the Aug 26 ’24 high.
• US PPI is the focus on the Tuesday economic calendar before UK and US CPI cross Wednesday. Fed speakers include Schmid and Williams.

Italian November industrial production was stronger-than-expected at 0.3% M/M (vs 0.1% cons, one tenth upwardly revised 0.1% prior). On a 3m/3m basis, industrial production remains negative at -0.5%, though this was a tenth above October’s reading. 

• Industrial sentiment in Italy remains weak, with the manufacturing PMI in contractionary territory for 9 consecutive months (46.2 in December), and the ISTAT manufacturing confidence series below its 2000-2019 average (85.8 in December vs 91.0 average).
• In its 2024/2025 outlook report, ISTAT noted that “the declining trend in industrial production, driven by the weakness of the German economy—Italy's primary export market—and the crisis in specific production sectors (predominantly automotive), has negatively impacted gross fixed investments and imports”
• Looking at the manufacture of transport equipment specifically, production fell 0.3% in November, corresponding to a -5.1% 3m/3m rate. The 3m/3m series has been negative since December 2023.
• 3m/3m production in consumer goods and energy production remained positive in November, though eased from last month's levels. Conversely, 3m/3m intermediate and capital goods production ticked higher, but stayed in negative territory.