EUR/USD (1.3515) Despite having a clear mandate to reach a deal on deficit reduction, the bipartisan ‘supercommittee’ in the US is widely-expected to announce failure soon.
But since an automatic trigger on debt reduction is already built in, the announcement of a gridlock will probably not result in a rating downgrade of the US debt, unless of course the politicians attempt to neutralise the trigger and stem the automatic deficit cutting. Moreover, if the summer debate on debt-ceiling is any guide, then the probable gridlock will not result in a dollar sell-off either. With the eurozone crisis hardly delivering any progress towards a resolution, the impasse in the US is only likely to aggravate the risk aversion, with capital likely landing into US Treasuries and thus into USD. Given the backdrop of still high yields in Italy, France and Spain, the euro is unlikely to be perceived as a better alternative to the dollar. That said, interestingly the current euro-dollar rate is trading at precisely the same level as a year ago, representing a apparent incongruity between the eurozone’s crisis and its currency. Anybody who was desirous to unload their euro holdings for fear of a crisis has had ample opportunity to do so. We doubt that new sellers will suddenly appear today.
Short-term, however, we still see a downside risk to 1.3350 and then to 1.3170, but only while it remains below 1.3760.
Market Bias Index
The biases remain remarkably modest with the Swiss Franc being perceived as less undervalued than on Friday. The AUD continues to be perceived as undervalued against both the EUR and the USD.
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http://www.easyforexnews.net/wp-content/uploads/2011/11/GDPBD00000199645.pdf
Deutsche Bank
Fixed Income Research – Global