The EUR has been unable to hold onto its gains following yesterday’s Financial Times story indicating EU negotiations are taking place to keep the existing European bailout when the new fund takes effect in mid-2012. The drop in the value of the EUR/USD comes after a German response threw cold water on the possibility of the ESM and EFSF running simultaneously
Today at 20:00 GMT we will get the interest rate decision and press conference from the Reserve Bank of New Zealand. The RBNZ is expected to hold rates steady at 2.50% unlike the RBA which lowered Australian interest rates by 25 bp.
The EUR sunk to its lowest level since early October following comments by both Moody’s and Fitch. The rating agencies criticized last week’s EU economic summit which fell short of a solution to the current fiscal problems. There is a risk of additional sovereign credit downgrades before the end of the year which would weigh on market sentiment and the EUR.
The most recent CFTC IMM data shows speculators reduced their EUR bearish bets though the market’s short position remains close to levels last seen in the summer of 2010.
Successful bond auctions in Spain and France have kept the markets buoyant with Asian equities rallying, though this may be just be markets playing catch up with their American counterparts after yesterday’s rally. European stocks are mixed while the major currencies appear to be consolidating. This is not surprising as we approach some important US data both this afternoon and tomorrow.
Month end fixing may end up being USD positive as banks’ funding costs for USDs continue to rise. Trading in Asia was off to a rocky start with the Heng Seng down 1.80%. The economic calendar is crowded today but investors will continue to focus on the meeting of European finance ministers.
As expected the Bank of England left its interest rate unchanged and did not add to its quantitative easing (QE) program today. The European Central Bank lowered its key refinancing rate by 25 bp. Investors are anticipating additional easing measures to be announced by Mario Draghi during his press conference today at 13:30 GMT.
On Wednesday at 13:00 GMT the Norwegian central bank will meet. Markets have already priced in a 25 bp cut but there may be scope for further easing of monetary policy which would likely weigh on the NOK.
