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  • USD: Plenty of economic news today, including jobless claims, Markit preliminary PMI, Bloomberg consumer comfort and University of Michigan confidence.
  • GBP: MPC Minutes will (as usual) be closely scrutinised, but on this occasion unlikely to be market-moving.

Idea of the Day

The dollar has continued to climb overnight and we believe it will continue to rise in the near term. Unsurprisingly, the Eurogroup was unable to narrow its differences with the IMF despite 11 hours of discussions – in response the euro has dropped back to 1.2750. Geo-political tensions in the Middle East help the dollar, as does the growing sense that America’s political leaders will do a deal to avoid a precipitous fiscal cliff. Also, the American economy is still delivering positive surprises. Keep the faith – stay with the greenback.

Latest FX News

  • EUR: Dissecting the failure of the troika to narrow its differences over Greece will be the major focus today, and could well result in some further euro-selling. Ultimately, the only feasible solution to get Greek debt back on a sustainable path is to force the official sector to accept significant haircuts. Right now, Europe would sooner lose its right arm than agree to this. Euro needs to fall further to put more pressure on politicians to sort out this mess.
  • USD: Very much in demand given Greece, a fragile Japan, geo-political developments and improving American economic data. HP accounting fraud stimulated risk-aversion, aiding the greenback. Still looks bid against most majors. Fiscal cliff negotiations still critical – on hold for the next week or so.
  • JPY: Continues to falter, with USD/JPY reaching a 7mth high. Tokyo will do absolutely nothing to discourage yen weakness. LDP still pressuring the BoJ to implement ‘drastic easing’; also declares intention to opt for massive fiscal stimulus, to increase military personnel levels and station officials on disputed islands. On this basis, yen weakness looks set to continue if the polls continue to favour the LDP.
  • AUD: Softened yesterday afternoon amidst risk-aversion backdrop. That said, selling still seems remarkably guarded. Traders seem happy to sell the yen and the euro, but less comfortable being short Aussie.