EUR/USD (1.3815) The OECD drastically downgraded its growth expectations for the eurozone in 2011, to 0.3% from the May 2% projection. By any definition, this assessment reflects a significant increase in downside risks to growth and also represents a negative indictment of the austerity measures imposed so far. Remember that two of the zone’s largest economies, Italy and France are just at the outset of their fiscal squeeze. The OECD hence called on the ECB to expand its balance sheet to fight the debt crisis while noting that the eurozone’s debt-to-GDP ratio, while rising, still remains below 100%. The topic of austerity will also be the subject of a national referendum in Greece, possibly as early as January. Whilst many observers may consider the result a foregone conclusion, given the recent strikes and demonstrations, one must not forget that the vast majority of Greeks do not demonstrate. Nonetheless, the pressure on policymakers to show some light at the end of the austerity tunnel has certainly risen. A German newspaper Handelsblatt however, writes that the Greek constitution explicitly prohibits referendum on financial issues.
With the Italian bond yields holding above 6%, the French bonds- German bund spread widening and the latest Chinese PMI dropping to lowest in almost three years, euro trades in a very fragile environment. If it undershoots the 1.3780 mark, the slide may stretch to 1.3630.
Market Bias Index
The MBI shows that compared to yesterday the yen is perceived as less undervalued. At the current levels the Euro/USD currency pair is seen trading at fair-value.
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http://www.easyforexnews.net/wp-content/uploads/2011/11/GDPBD00000197245.pdf
Deutsche Bank
Fixed Income Research – Global