EUR USD (1.3085) The surge in US payroll data triggered an equity rally. After initially falling the euro regained strength and finally closed lower at the pre-payroll levels. As the ISM data was also firm, the market is again discussing whether the odds against the QE3 have now increased and whether the Fed will tighten interest rates earlier than late 2014. Since in his testimony before the Budget Committee, Ben Bernanke implied that his view on the unemployment data will tend to include broader signs of increased labour participation, we reckon that he is reluctant to be optimistic too early. After all in 2011 pay-roll data peaked before sliding again towards end of the year. Thus the odds against QE3 too are probably not higher than earlier. Meanwhile Greece is where the market is focussing. Reports suggest that although the deal on PSI is nearer, the eurozone officials are
reluctant to signoff the second bailout until all Greek political parties concur on the new austerity demands. Probably to increase pressure on Greek politicians, Eurogroup’s Juncker did not rule out the possibility of a default should opposition to reforms continue. Admittedly it is difficult to fathom full ramifications of a default, but ironically the long drawn Greek crisis has given the market time to price in the calculable risks.
In case of a dip to 1.3025/35 (without first breaking 1.3290) we would embark on a bullish strategy with a risk-limit at 1.2910. The target would be 1.3395.
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Deutsche Bank