EUR/USD (1.3405) There is yet another eurozone resolution blueprint in the market namely a special fund under the auspices of the IMF. Market perception seems to be that the process to channel around €200bn from ECB, Fed and other central banks to a special fund coordinated by IMF is already underway. Many hope that the IMF detour option will essentially calm those who use the argument that the ECB is prohibited by law to function as a lender of last resort to governments. Another bone of contention in the eurozone crisis is the German insistence on a stringent fiscal compact before mutualised eurobonds are born. With Italy’s new Prime Minister rushing through a €30 billion austerity and growth programme a day earlier than planned, the markets probably have the impression that the some of the biggest members of eurozone are now closer to consensus than ever before. Whether these developments will yield a real breakthrough during the Friday’s impending EU summit remains to be seen. Until then, the ECB’s Thursday meeting is widely expected to announce at least a 25bp rate cut. While monetary easing of this magnitude is not seen as any kind of solution to the eurozone’s solvency and funding challenges, an absence of such an announcement would disappoint. Although Friday’s better-than-expected US employment data hoisted the euro a little, it turned ahead of our key 1.3575 hurdle. So the risk remains for a slide to 1.3170
Market Bias Index
The index essentially continues to reflect Friday’s perceptions. With the exception of CAD and AUD, most currencies are trading not far from levels that market participants are likely to consider fair-value.
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Deutsche Bank
Fixed Income Research – Global