After last week monetary policy easing from the RBA, BoE and ECB, there has been a lot of directional moves on the Forex market, particularly on the euro.
In fact, the Reserve Bank of Australia decided last Tuesday to leave the cash rate unchanged at 3.50% while the BoE soon followed on Thursday. Together with the highly anticipated ECB decision to reduce by 25 basis points its interest rates to 0.75%, which led investors to turn to the greenback. The dollar index (DXY) has even got closer to its year-high at 83.54.
Despite a series of downbeat data from the US with the monthly payrolls last Friday, the euro didn’t manage to get back on course. US Change in Private Payrolls rose to 84’000 in June below expectations for 102’000, US Non-Farm Payrolls climbed to 80’000 against a first estimate for 90’000 while weekly jobless claims slipped to 374’000 versus consensus for 385’000.
On the contrary, the single currency remained under pressure by falling to a 2-year low at 1.2251 versus the dollar during the Asian session.
The European Finance ministers will meet in Brussels today to take one more step to try and solve the euro-area sovereign debt crisis. Starting with Greece which expects to receive €31.5 bln to cover its payments due on August 20th, those funds are subject to a review of Greece’s budget. Besides, Fin Ministers will give more detail to Spain’s bailout which should be linked to the ESM to lend directly to the bank, but it’s unlikely to happen before 2013. In the meantime, the Spanish 10-year note is currently around 6.98%. Last topic on the meeting docket is the Cyprus’s banking issues, it seems that conditions are being set before any agreement to lend is reached.
The consolidates at 1.2300, still close to its fresh 2-year low and seems to digest last week’s monetary policies. In case the fall extends, the next objective would be a test of the levels last reached in June 2010 at 1.1900. On the daily timeframe, the euro remains in its bearish channel in the middle range. Therefore, there is still an important bearish potential on the single currency.
This week, the market will probably focus on the outcome of the FOMC meeting minutes this Wednesday where there is a possibility that the current asset purchase program could be extended. Moreover, Italy will tap the bond market on Thursday which will serve as a reminder to find a solution to the European sovereign debt issues.