EUR USD (1.2525) During his testimony before the Congress Ben Bernanke stopped short of signalling an outright QE3, although he indicated Fed’s intention to act if eurozone deteriorates. In a similar fashion Mario Draghi too refrained from implementing a cut. So in a sense both the central banks (and for that matter also the BoE) downplayed the effectiveness of central bank activism as far as monetary policy is concerned. Instead they urged politicians to converge on policy reforms. The lack of urgency that both heads conveyed rather diverged from the market perception of the global economy. A pro-active Chinese rate cut thus not surprisingly, inspired a short-lived risk on. On the European front in-demand Spanish and French bond auctions represented a slightly firmer tone. For the currency markets however, Spanish banks and Greece continue to represent difficult-to-judge risks. Although IMF judges the recapitalisation of Spanish banks at around €40 billion, a decision on recapitalisation is expected only after the independent assessment due end of the month. Indeed even as core countries debate whether fiscal union should precede other crisis intervention measures, the record 28 percent increase in the SNB’s currency reserves in May, could prove critical for the currency markets. A road map to European integration, latest at the next EU summit end of the month, is thus crucially urgent. We have entered a bullish strategy with 1.2785 as a price target and 1.2470 as risk limit.
Click here to read the full report: Daily forex 06.08.12
Deutsche Bank