EUR USD (1.3195) The successful Dutch government bond sale managed to offset the negative sentiment that the political upheaval in Netherlands triggered in the market. Nevertheless the collapse of the Dutch government bought into forefront the challenges of trying to implement austerity programmes, not just in the periphery but in the AAA-rated core economies too. It also reveals how even a core economy, whose finances are not necessarily in difficulty, can be punished in market, if only briefly, via increasing borrowing costs. Perhaps aware of the sensitive market reactions, French candidate Francois Hollande has clarified his views on the EU fiscal pact and indicated that he is aiming for a ‘wider’ EU fiscal pact which also includes growth-inducing tools. Indeed, with policymakers from countries like Germany and France facing an increasingly uphill task of selling austerity, markets are at least implicitly hoping for monetary easing from the central banks. In the US, while the Case-Schiller Home Price Index was upbeat, its engineer, Yale’s Robert Schiller, was more sombre. He suggested that the labour and housing markets were not turning any time soon. So, although no new impulses are awaited from today’s FOMC meeting, there is a hope there too that a follow-up of Operation Twist will be mentioned somewhere. The euro continues to move just below our 1.3235 stabilisation point. A break would allow gains to 1.3350. To the downside, support has improved at 1.3060 ahead of 1.2960.
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Deutsche Bank