EUR USD (1.2260) A collection of disappointing US data releases caused the dollar to weaken moderately yesterday. The headliner was the Philly Fed survey, which was not only belowconsensus, but also recorded its third consecutive negative reading. This worrisome configuration has not been seen since June 2009, and has heightened market concerns about a recession in the US. The employment component in the survey was also weak, and came on the back of a worse-than-expected reading for initial claims. So, once again, traders started to talk about the likelihood of Fed QE3 and the euro climbed. There was no follow-through to the rally, though. However, the reason traders diluted their hopes for more moneyprinting had nothing to do with the height of the bar for Fed policy, but rather the remarkable strength of the stock market. A common, but softly-spoken belief is that the Fed would also need to see an equity market sell-off to confirm the deterioration of the wider economy before it would restart QE. So far, however, the main US stock indices are holding up rather well. This is a puzzling development for many observers, including global equity fund managers, who had expressed a gloomy opinion in recent surveys. The euro again failed to overtake the 1.2365 hurdle necessary to secure a near-term stabilisation. Until this is achieved, we remain very cautious of the single-currency, especially as the best demand point is only down at 1.2155.
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Deutsche Bank