EU Morning Report

Dollar is weaker ahead of the FOMC meeting

  • Euro rose today, hovering near a two month high after breaking above the 1.37 level against the US dollar. On Tuesday, robust demand for the European Financial Stability Facility's debut bond auction boosted investors' euro confidence. Also supporting the euro is the view that the ECB will raise the interest rates before the US. Inflation concerns in the EU are growing in contrast to the Fed, which appears determined to support growth giving the euro an interest rate advantage. The euro rose as high as 1.3702 dollars and the pair was last traded at 1.3663.
  • Investors eye the two day FOMC meeting concluding on Wednesday but no changes in the Fed's monetary policy are expected. Speculators expect rates to remain near zero levels and the Fed's 600 billion dollar Quantitative Easing program to be completed. The dollar fell against a basket of currencies weighed by falling US yields and investors' weak sentiment on the dollar. Against the Japanese Yen, the greenback slid to 81.96 breaking below the 82 level from 82.65.
  • The Sterling declined versus the dollar after disappointing GDP data showed the economy shrank by 0.5%, raising concerns that the UK is reentering recession. The poor GDP figure is bad news for the UK as it battles with a slow growth, a worrying high inflation and a stubbornly high unemployment. The question remains whether fiscal tightening would be a wise option for the Bank of England at a time where the UK economy risks of going back deep into recession. The British pound plummeted as low as 1.5749 versus the dollar from 1.6015 and the pair was last trading at 1.5803.
  • Gold edged higher on Wednesday supported by a weaker US dollar. The precious metal rose as high as 1337.25 dollars an ounce from 1322.50.

Currency to watch out for: EURUSD & USDJPY

  • § The EURUSD pivot point is at 1.3590 with a preference to enter into Long positions at 1.3600
  • § The USDJPY pivot point is at 82.40 with a preference to enter Short positions at 82.35         

Today's calendar and market movers:

  • § US interest rate decision is forecasted to leave rates unchanged at 0.25%
  • § US New Home Sales in December is forecasted to rise to 303k
  • § New Zealand interest rate decision is forecasted to keep rates unchanged at 3% 

Equity Markets:

US equities were mixed on Tuesday with the S&P500 trading up 0.03% and the DJIA trading down 0.03%. The European bourses are negative with the FTSE trading down -0.44%, the DAX trading down -0.12% and the CAC down 0.34%. The NIKKEI and the HSI at the time of writing are trading down 0.60% and up 0.59% respectively.

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