EUR/USD is steady as the markets eagerly await Wednesday’s Federal Reserve policy-setting meeting. There are growing expectations that the Fed will continue to implement monetary easing, which would be bearish for the US dollar. In Italy, Prime Minister Mario Monti, who announced his resignation late last week, sought to reassure nervous markets that he would remain in office to pass the 2013 budget. In economic news, German ZEW Economic Sentiment looked very sharp, moving into positive territory for the first time since May. There are only three releases in the US on Tuesday, the highlight being Trade Balance.
EUR/USD Technical
Asian session: Euro/dollar was very steady, as the pair consolidated at 1.2943. In the European session, the pair has edged higher.
Current range: 1.2960 to 1.30.
Further levels in both directions:
Below: 1.2960, 1.2880, 1.28, 1.2750, 1.2690, 1.2624, 1.2590, 1.25, 1.2440, 1.2390 and 1.2250.
Above: 1.30, 1.3030, 1.3080, 1.3130, 1.3170, 1.3290 and 1.34.
1.2960 is providing weak support. 1.2880 is stronger.
1.30 is the next line on upside.
Euro/dollar edges higher as markets wait for Fed policy meeting – click on the graph to enlarge.
EUR/USD Fundamentals
6:30 French Final Non-Farm Payrolls. Exp. -0.3%. Actual -0.3%.
7:00 German WPI. Exp. +0.4%. Actual -0.7%.
All Day: Eurogroup Meetings.
10:00 German ZEW Economic Sentiment. Exp. -11.4 points. Actual +6.9 points.
10:00 Euro-zone Economic Sentiment. Exp. +0.1 points. Actual+ 7.6 points.
13:30 US Trade Balance. Exp. -42.7B.
15:00 US IBD/TIPP Economic Optimism. Exp. 51.6 points.
15:00 US Wholesale Inventories. Exp. +0.5%.
For more events and lines, see the Euro to dollar forecast
EUR/USD Sentiment
Will Fed implement QE4?: The markets are eagerly awaiting the next policy-setting meeting of the Federal Reserve, scheduled for Wednesday. While the politicians in Washington continue to squabble over the fiscal cliff, the Fed could spring into action with an additional monetary stimulus package. Operation Twist is nearing its end, and the Fed could decide to purchase $30-40 billion of Treasuries, in addition to the current program of $40 billion in purchases of MBS. There are plenty of weak areas in the US economy, including high unemployment and a sluggish manufacturing sector. These soft spots could serve as the catalyst for further Fed intervention.
Italian PM Monti announces resignation: There were dramatic events in Italy over the weekend, as Prime Minister Mario Monti announced that he will resign shortly, after losing the support of former Prime Minister Silvio Berlusconi’s party. The move means that Italians will head to the polls early next year. Monti has had success, cracking down on tax evasion and restoring Italy’s financial credibility, which has taken a beating as a result of the Euro-zone debt crisis. However, with the Italian economy mired in a recession, the latest political events puts further pressure on the shaky euro. Monti sought to reassure nervous markets, stating that he would remain in office until the 2013 budget is passed.
Bundesbank cuts German growth forecast: After the ECB issued a bleak assessment of Euro-zone growth late last week, the German Bundesbank followed suit. The powerful central bank revised downwards its forecast of growth in the Euro-zone’s largest economy. The Bundesbank said that it expects German GDP to expand just 0.7% this year and a negligible 0.4% in 2013. Back in June, the Bundesbank predicted growth of 1% in 2012 and 1.6% in 2013. On a positive note, the report stated that 2014 should see much stronger growth.
Euro Economic Sentiment data Improves: The markets received a dose of positive news as German and Euro-zone Economic Sentiment releases both looked sharp in November. The indices measure the level of optimism of institutional investors and analysts, and their opinions are highly valued by the markets. ZEW German Economic Sentiment climbed to 6.9 points, the first time the key index has pushed above the zero level since May. Euro-zone Economic Sentiment was also strong, coming in at 7.6 points, a seven-month high. Further solid data out of the euro-zone would provide a boost for the euro, which has looked shaky over the last few days.
Greece launches buy-back, waiting for aid: Greece has offered to purchase 10 billion euros of its national debt, as part of the new bailout agreement aimed at resolving the country’s severe debt crisis. Market sentiment was positive after the Greek government offered a premium on markets prices for Greek bonds. The EUR 10 billion buy-back could allow Greece to retire up to EUR 30 billion worth of debt. Greece is expecting the next installment of aid on December 13, and the buy-back is scheduled to be completed by December 17. German Chancellor Angela Merkel hinted that Berlin could consider a write-off of its Greek loans. Until now, Germany has strenuously objected to a write-off of Greek debt, but may have to show more flexibility if Greece is to regain its financial footing. However, Merkel isunlikely to agree to a debt haircut, in any shape or form, prior to German elections in 2013.
US lawmakers bicker as fiscal cliff negotiations continue: Republicans and Democrats continue to battle hard over the looming fiscal cliff crisis. The Democrat proposal calls for $1.6 trillion in additional taxes over the next 10 years, with higher taxes on those earning over $250,000. The Republicans have offered $800 billion in new tax revenue from spending cuts and overhauling the tax code. However, the Republicans are split on whether to agree to higher income tax rates, and the Democrats, led by President Obama, could take advantage of the disarray in the Republican camp. The markets are hoping that the politicians will find a compromise and avoid a crisis which could threaten the fragile US recovery. Both parties are likely to continue talking tough for a while yet, as the fiscal cliff clock keeps ticking.
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