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EUR/USD Fundamental Outlook at 1500 GMT (EST + 0500)
The euro moved marginally lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2570 level and was capped around the $1.2685 level. Traders are closely watching congressional testimony from Federal Reserve Chairman Bernanke and Treasury Secretary Paulson today. Paulson recently noted the credit crisis has moved beyond the housing sector and both officials are likely to face extreme pressure regarding an automakers’ bailout or stabilization board. There will also be grilling related to the Bush administration’s decision to not purchase up to US$ 700 billion in toxic assets pursuant to the Emergency Economic Stabilization Act. Instead of being appropriated to the Troubled Asset Relief Program, the funds are likely to be injected directly into banks. Data released in the U.S. today saw October producer prices fall a record 2.8% following September’s 0.4% decline and October PPI was up 5.2%. Core PPI was up 0.4% m/m and 4.4% y/y. Other data saw September net capital inflows of US$ 143.4 billion, large enough to cover the US$ 56.47 billion trade deficit that month. Fed funds futures are fully pricing in a 50bps cut in the federal funds target rate to 1.00% by the Federal Open Market Committee next month. Data released n the U.S. last year saw October industrial production up 1.3% with October capacity utilization at 76.4%. In eurozone news, the European Parliament called for the European Central Bank’s rate-setting power to be shifted from the larger Governing Council to the smaller Executive Board, a move that will likely fail because it would require 27 European Union members to ratify changes to the treaty. ECB member Noyer said there have recently been some signs of improvement in the money markets. Euro bids are cited around the US$ 1.2135 level.
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