- Merkel-Sarkozy assurances taken at face value, EUR shorts continue to cover……..
The DXY version of the dollar index lost some 1.5% Monday and US equities posted their strongest one-day gain since August 23rd. This was after the market chose to take at face value assurance from French President Sarkozy that he and German Chancellor Merkel would unveil “comprehensive, sustainable and rapid responses (to the Eurozone crisis) before the end of the month.” EcoFin is now to meet on October 23rd, ahead of the early November EU summit. Assurances from both Moody’s and Standard and Poor’s Monday that France’s AAA rating was secure was helpful in limiting the impact of Friday’s night’s actions by Moody’s in placing Belgium on watch for a possible downgrade and by Fitch on Spain and Italy. Given the extent of the short Euro base, at least as evidenced by Friday night’s IMM data (see Chart) it is not too surprising to see knee jerk euro losses on bad news headlines (such as Friday’s ratings news) quickly retraced. That CHF was the biggest gainer on Monday owed something to the evident disappointment in some quarters that rumours of a weekend adjustment to the SNB’s EURCHF peg floor came to nothing.
- Slovakia EFSF vote, IMF statement on Greece, two potential EUR speed bumps Tuesday but 1.39 now possible
Slovakia’s four coalition members will meet at 9am local time Tuesday ahead of a parliamentary debate and vote due to commence at 1pm. This follows the failure Monday of coalition partners to placate the Freedom and Solidarity Party (SaS) on its demand for a right to veto individual EFSF disbursements and on its demand that Slovakia does not participate in the ESM. Lack of agreement ahead of the parliamentary date make it likely the EFSF changes will be voted down, whereupon the main left-wing opposition party has said it will support the bill but only on condition of early general elections. This may indeed be what transpires. As such, we see the potential for a euro drop on Slovakia news alone as likely to be both limited and temporary. As or perhaps more significant Tuesday may be the IMF’s planned statement following the troika’s latest visit to Greece, but unless they indicate that the conditions for the next tranche of aid have not been met and not likely to be, we doubt EURUSD comes to any great harm. Indeed, having pushed through the 61.8% retracement level of the 1.3936/1.3146 fall on Monday (on very small volumes) it is not out of the question that our new technical target area of 1.3900 could be seen before the week is out.
- Looking ahead to China data; in meantime NAB biz survey, Swedish CPI, UK IP all of interest.
Beyond specific EURUSD influences on G10 FX, we are looking to the FOMC minutes on Wednesday and then the next batch of monthly China data (money supply and FDI from as early as Tuesday, trade on Thursday and CPI on Friday) as key events. Before then, some AUD-specific interest may be drawn from today’s NAB business confidence/conditions survey. Tuesday’s Swedish CPI data, if it confirms a benign outcome (i.e. core CPI dropping back slightly from 1.6%) may help the cause of NOKSEK, though lack of follow-through gains after Monday’s strong Norway CPI and weak Swedish production data suggests there is already quite a long NOK base in existence. GBP traders will take interest in the latest industrial production numbers, though weak data (-0.2% expected for both manufacturing and total production) will be seen more as justification for last week’s QE move than justification for more. As such we doubt GBP comes to immediate harm.
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