EUR/USD (1.3905) The German Chancellor Merkel has been forcedto put the controversial issue of leveraging the EFSF to one trillioneuros under a full vote in German Bundestag. While the planned Wednesday vote does not really allow time for any serious debate, itdoes serve the markets with a reference point as far as the firepowerof EFSF is concerned. Of course, for some investors the three trillioneuro figure is the psychological anchor – the figure that many considerto be the comprehensive solution that would bring the crises to anend. One trillion euros is likely to be perceived as sufficient tosurmount the immediate hurdles, but still needing of more resourceslater. In any case whether it is 60% haircut on Greek debts that islikely to be discussed by the German parliament tomorrow or thedisappointing European PMI, the euro seems unresponsive to theheadline EU news, until Wednesday’s summit at least. Aftersurrendering yesterday’s early session gains, the euro appears toreflect only the current dollar weakness. Market expectations of a newround of Fed QE, including the purchase of mortgages, rose againafter New York Fed president William Dudley hinted at it yesterday. Heblamed problems is the housing market for slow and still disappointingUS economic growth, but downplayed inflation threat.
We remain positive for the short-term euro outlook and continue toexpect gains to 1.4060. The best support, however, is down at 1.3760.
Market Bias Index
The perception of dollar undervaluation is now universal. Even versus the CHF, the US-currency is likely perceived as overpriced for the first time since early September.
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Deutsche Bank
Fixed Income Research – Global