EUR USD (1.2585) Against the backdrop of manufacturing contraction in 21 out of 29 global PMI’s, the IMF’s Lagarde yesterday highlighted the dangers of growth-threatening fiscal and monetary policy. For example, she bemoaned the trillions of dollars of expiring tax cuts and automatic government spending reductions in the US. The Fund also chose to highlight Germany’s increasing vulnerability to a slowdown in global growth, but pointed out the inappropriateness of ECB rate cuts. She instead encouraged the ECB to ramp up its bondbuying programme, since it can specifically target the peripheral economies. While Lagarde’s concerns are justified, the eurozone nations bound by high debt-servicing costs are unlikely to take a detour from the austerity road. As it is, reports suggest that Greece is to present ‘alarming’ data to creditor inspectors, and France’s new government is set to introduce new austerity measures in order to achieve as much as €43 billion in savings to meet European budget deficit targets and to keep France’s borrowing costs from going higher. The implied volatility in the euro has reached low levels last seen in May. We see it as a reflection of the market’s preparedness for weakness and, therefore, of thin overhead supply. We continue to expect the euro to climb to 1.2745, the upper border of the recent consolidation zone and, beyond that, even to 1.2840, the key level for further acceleration. Only below 1.2510, the former lower border of the consolidation zone would it risk losing its current momentum.
Click here to read the full report: Daily Forex 07.04.12
Deutsche Bank