EUR/USD The EUR/USD failed to hold onto earlier gains generated by broader risk appetite as concerns over the European debt crisis and the U.S. economy spark a late sell off. Optimism was high overnight as the Obama administration and the GOP agreed to extend unemployment benefits and extend existing tax cuts the wealthy. Risk appetite remains a main driver of the pair’s price action despite the concern over Ireland, Spain and Portugal, evidence by the 64% correlation between it and the Dow. Meanwhile, U.S. and European yield expectations have started to grow in influence with both explaining 20% of direction. Fed QE has raised concerns over future inflation and has markets starting to price in abrupt tightening. Conversely, an increase in ECB stimulus efforts has dimmed the yield outlook for the single currency. The passing of the new Irish budget failed to help generate bullish sentiment, which will leave us to take our cues from broader trends when trading the euro/dollar. EUR Interest Rate Expectations USD Interest Rate Expectations
ECB Interest Rate Expectations The European Central Bank has aggressively resumed their bond purchases as they look to restore investor confidence in European sovereign debt. Meanwhile, E.U. ministers voted to not provide aid packages for Spain and Portugal as there is confidence that the monetary authority’s actions will negate the need for help. The central bank increasing their additional measures has pushed out the horizon for a rate hike with Overnight Index Swaps now pricing in 32.4 bps in tightening over the next versus 49.6 on November 18th. Discuss this and trading ideas join the EUR/USD forum. Credit Suisse (OIS) ECB
Source Bloomberg – Prepared by John Rivera FOMC Interest Rate Expectations The outlook for U.S. interest rates has remained unchanged for the past month despite a dismal labor report and the ongoing issues in Europe. Talk of additional QE from Ben Bernanke also failed to dim the outlook for a rate hike, as the prospect for more pump priming has only fueled inflation fears. The upcoming economic docket is light but we could see the extension of unemployment benefits add to the prospect for future tightening. However with the FOMC rate decision looming markets may wait ti see what policy makers say before making any new bets.
Source Bloomberg – Prepared by John Rivera Risk Stocks ended the day flat following their late selloff after the S&P 500 hit a two year high and the Dow just missed its yearly high. The blue chip index could be settling into a short-term range if we see continued bearish momentum. 11,000 remains a major support barrier and another test of the psychological level could be ahead, which doesn’t bode well for EUR/USD bulls given their strong correlation. Discuss this and other fundamental data in the Economics Forum. Dow (Daily)
Source Bloomberg – Prepared by John Rivera To discuss this report or be added to the email list contact John Rivera, Currency Analyst: jrivera@fxcm.com
View the original article here
No comments:
Post a Comment