The recently proposed European bonds (E-bonds) echoed throughout the markets, do not seem to be on the agenda of this week's EU summit (16th & 17th December) - last week Germany and France joined forces against this preposition. Creating a European treasury (to the likes of the US treasury) as a longer term solution for the current EZ debt problems does not seem to have been well received.
Such solution would probably reduce the pressure on individual Euro Zone nations to keep their fiscal positions in good shape and it would create a pool of funds for the 'good' nations and the 'worst' nations and it would thus probably increase funding costs for countries like Germany to benefit the nations which are relatively speaking worst off when it comes to fiscal health.
Despite their reluctance towards the idea of a European bond, both France and Germany made it clear they were determined to stand by the Euro.
In Asian markets, Chinese inflation data released over the weekend, revealed increasing inflationary pressure. This will likely make the case for more tightening measures. In fact an increase in the required reserves for Chinese banks, that was due to expire this week, shall be extended for another three months. China is committing itself to keep inflation under control in 2011, while it shall be taking measures to sustain economic growth.
In the meantime, during Asian trading traders start to observe thinning volumes in what seems a preparation to wind down trading as year-end gets closer.
The euro gained some respite Friday despite being under pressure yesterday on the news that Fitch had downgraded Ireland's debt rating by 3 notches to BBB+. The single currency was up on stronger than expected Chinese trade data, and easing of US Treasury yields. However, outlook for the euro remain gloomy as persistent concerns over euro zone debt crisis and doubts whether US Treasury yields have peaked are expected to keep the pressure on the single currency.
Strong Chinese trade data, also lifted risk currencies overnight but market expectations of an imminent Chinese rate hike, possibly as soon as this weekend, eased some of the buying pressure. The euro was up more than a quarter percent versus the greenback, while the Australian dollar and the New Zealand dollar were up 0.20 and 0.25 percent respectively versus the yen.
The best performer however has so far today been the British Pound. The Sterling is up across the board, recording a quarter percent gain against the greenback and the yen respectively, while also gaining 0.20 percent versus the euro. The success of the sterling is attributed to the fact the Bank of England kept rates unchanged at 0.50 percent, while UK economists are expecting rate hikes in Q3 of 2011.
With Fitch being the first agency to downgrade Ireland from it's A credit status, adding fuel to the situation in Ireland was the position taken by the opposition to vote against the approval of an 85 billion euro IMF/EU rescue package next week.
The US dollar paused on Thursday as US bond yields showed signs of stability while the Australian dollar was boosted by a strong jobs report showing the country's employment is growing far faster than anticipated.
US Treasury prices were up on Thursday after a 2-day surge in yields, pulling the greenback lower, as investors are seeing both higher US yields and higher growth as supportive for the dollar, at the moment.
A very strong Australian jobs report released today boosted risk appetite as higher-yielding currencies and global equity markets were all seen on the rise. The euro was also aided by the surge in Australian employment, and by the fact that debt concerns backed off slightly as euro zone bond yields fell slightly. However, investors are still said to be concerned as concerns about euro zone debt financing could crop up to hurt the single currency at any moment.
The Australian dollar was therefore the best performer trading up to 0.9884 against the greenback and 82.83 versus the yen. The euro was up to 1.3322 versus the greenback after going as low as 1.3180 yesterday. The New Zealand dollar was the biggest loser earlier today, after the Royal Bank of New Zealand kept rates unchanged at 3.0 percent while also sounding dovish and revised down their outlook for future rate hikes.
The US dollar continued to strengthen in the Asian session, having powered up across the board on Wednesday night's US session, on the back of climbing US Treasury bond yields. The dollar rose against the euro after falling early on Tuesday, on optimism about Irish budget parliamentary vote. The euro had risen to 1.3400 yesterday, only to drop to 1.3257 before the end of the session.
The 10-year yield increased by about 20bps as investors were seen dumping Treasuries following the news that President Obama and Republican leaders reached a deal on a new tax deal. The greenback recorded gains against the euro and yen, while also finding support against higher-yielding currencies such as the Australian dollar.
The dollar was up over 0.40 percent against the euro, up to half a percent against the yen, and 0.7 and 0.40 percent against the New Zealand and Australian dollar respectively. Gold was also down versus the greenback, after hitting a new record high yesterday at $1'431.27.
The Nikkei hit a 7-month high Wednesday, boosted by a weaker yen, while US equity markets closed relatively flat as earlier rallies from the tax cuts quickly faded as uncertainty resurfaced after a report in an official newspaper saying China may raise interest rates in the coming weekend to cool inflation pressures.
RTFX Trend is now bearish for
as from yesterday night withthe starting rateat 1.3261, while RTFX
for EUR/USD suggests further declines if 1.3307 - 1.3331 hold.
The euro took a breather on Tuesday, on hopes that Irish parliament will approve an austerity budget later today, however bickering debt concerns persist. The single currency is up around 0.45 percent against the dollar so far today, reaching 1.3371 at the time of writing.
Although many still believe the euro is headed down, recent remarks from Fed officials have ignited talks the Fed may well end up increasing its balance sheet and buying more bonds than its initial target of $600 billion. On Sunday, Fed Chairman Bernanke did not rule out further bond purchases, saying the US economy struggles to pick up enough pace to create jobs.
The RBA kept rates on hold at 4.75 percent this morning, while adopting a more neutral policy, saying that the board sees "this setting of monetary policy as appropriate". The Australian dollar dipped to 0.9885 immediately after the announcement but recovered soon after and is now trading close to a 2-week high at 0.9930 against the greenback.
The yen hit a 3-week high against the greenback as a result of talks of further bond purchases by the Fed. The dollar fell to 82.34 in Asian trading against the yen. Japanese Finance Minister Noda said that since yesterday, "there have been 1-sided moves." He warned against further yen gains while reiterated that while he is not in a position to comment on other country's monetary policy, he will continue to pay close attention to the markets.
The strength of the yen pulled Asian equity markets down on Tuesday, as a stronger yen is darkening investor's mood in Japan. Fears of an imminent Chinese interest raise hike also weighed on stock markets. Meanwhile gold hit a record high at $1'427 on Monday, as it got a boost from the Fed Chairman's comments and Silver also reached a 30-year high at $30.33 earlier today.
November US non Farm Payrolls only rose 39k (vs. an expected 140K +) and private payrolls were up by 50k (vs. an expected 150K +) this pressured the US Dollar and helped the Euro retest the 1.34 region on Friday evening. Comments, from Fed Chairman Bernanke, suggesting that if the US economy does not show signs of response the Fed could go beyond the USD600 bln originally allocated for QE2, also weighed on the USD. So far this morning the USD has managed to pare some of its losses,
trading at 1.3330 at the time of writing.
Euro Zone debt concerns seem to have ebbed, at least for the time being - while the ECB seems to have become more active in its bond buying program and so far seems to have succeeded in narrowing the bond spreads for the most troubled Euro Zone nations. While the bond buying program seems to have sealed a leaking hole, it is no new resolution really because the ECB has had this option available since last May. So markets might need to be cautious for any possible shift in sentiment.
With the recent Euro Zone debt events still fresh in investor's minds, and resurfacing US economy concerns (brought back to the limelight after Friday's payrolls) Gold enjoyed a bit of a comeback. The weakening US Dollar also helps demand for Gold. Gold trading seems to be eyeing a retest of early November highs just below the 1425USD price, current price is at 1418.30USD.