Another week begins with specific news events hanging over the foreign exchange market. While last week was dominated by the ECB meeting and the Non-Farm Payroll report, this week will have the German high court decision on the ECB bailout fund as well as the FOMC meeting where most analysts agree that there will be some announcement by FED Chairman Bernanke about QE3.
First things first. The German Federal Constitutional Court has had nine weeks to decide on whether the European Stability Mechanism is legal or not. The EUR 500 billion is expected to work with the ECB to buy bonds from Spain and Italy in an effort to lower yields.
Guest post by Matthew Lifson, Foreign Exchange Trader, Market Analyst of Cambridge Mercantile Group.
While this is the dominant news event for the EUR this week, there are a couple of other events going on as well. The Netherlands votes this week on whether to support the parties that are questioning the expansion of European powers and the EU finance ministers meet on Sept. 14. Polls indicate that no party will get enough votes for a majority, so this could also add concerns as the week moves forwards.
Needless to say there is concern that a negative decision by the court could create a problem. Most analysts expect a positive outcome from the court decision but that there could be some conditions imposed by the court to go along with their decision.
Spain and Italy are both expected to be in line for ECB assistance in the coming weeks, although Spain’s PM Rajoy has not committed to that, stating the he wants to study the details of the program before making a decision.
Greece once again is in the news as the Troika has not accepted all measures of the austerity package according to Greek leader Venizelos. The Troika returned to Greece last week for review of the austerity program and Prime Minister Samaras is expected to meet with them today to discuss the austerity program. The Troika is also reviewing the request that Greece made for a two year extension in its fiscal adjustment program.
EUR has had a relatively quiet range edging just above the 1.2800 briefly before retracing back into the higher 1.27 area. EUR/CHF continues strengthening as traders believe that there will be a new “floor” given to the cross by the Swiss National Bank. Traders are looking at the 1.2200 level as a possible new floor for the EUR/CHF cross.
On Thursday this week, the FOMC will announce their interest rate decision. Last Friday’s poor NFP release has many believing the FED Chairman will announce the long awaited QE3 at his press conference following the meeting. The FEED will release new economic projections and it is expected to announce that rates will remain low into 2015.
The risk currencies continue to remain well bid as the AUD and the CAD continue to be a destination for traders looking to add to their risk on positions. GBP rose above the 1.60 area earlier but retraced when the EUR move back below the 1.2800 level.
Asian and European equity markets were mostly lower during overnight and early morning trading and DOW Futures are lower this morning indicating a negative start to the US equity market.
Expect range trading today as traders look for signs from the meetings later this week.
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