The dollar weakened throughout the night as continued speculation the U.S Stimulus package wouldn’t be sustainable marred sentiment. The EURUSD traded a 1.2879 – 1.2949 range with a slight bias to the upside. However, we continue to believe any move on the part of the pair is dollar driven. Euro zone GDP figures are expected at 10:00 GMT today (-1.2% vs. -0.2%).
A key event today and tomorrow is the G7 summit in Rome. 7 of the largest economies will discuss monetary policy and interest rates – with a focus on the dollar and the Yen. Some may remember the concerted intervention in 1985 and 1987 on the dollar – however we don’t see this meeting being a major currency mover, except if some sort of landmark agreement spawns from this meeting.
Markets will continue to trade with risk aversion as the main impetus. It is interesting to note that with global interest rates so low the YEN isn’t necessarily that strong against other currencies – however with a local economy so dependant on exports, the relatively strong Yen continues to hurt the economy. The inverse can be said of the Sterling, which has been greatly oversold – on worsening economic data.
News in brief: Australia votes and accepts the previously rejected $27.3m stimulus plan. Europe set to confirm deep recession with GDP numbers today. US initial jobless claims falls short of consensus at -623K (vs. prev. -626K). Improvement in Retail sales shouldn’t be taken as a real sign of recovery – heavy discounts and a strong Christmas season are to blame. News is light today.
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