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USD: Today’s data will be of only minor interest for the dollar. The income and spending numbers at 12:30 have been superseded by the GDP numbers on Friday and the pending home sales is never a big issue for market unless it’s drastically away from expectations.

EUR: The single currency will have one eye on the Italian and Eurozone confidence data released this morning, especially in light of the weaker confidence data seen from Germany recently. Softer data would further increase speculation of a lowering of interest rates from the ECB this week.

Idea of the Day

The big issue this week will be whether the European Central Bank further cuts interest rates. Expectations have increased on the back of the weaker data seen recently, especially some of the confidence numbers from Germany. The last rate cut (in July of last year) came soon after a similar weakening in the German numbers, so there are some parallels.   On the face of it, the euro has held up pretty well given the risk of a rate cut, holding above the 1.30 level for most of the past week.   But it has underperformed most of the other majors.

For choice, we expect that the ECB will hold off cutting rates for this month, but don’t rule it out for later in the year. Still, it’s likely to be a choppy week for the single currency ahead of Thursday’s rate decision.   For today, a mild positive glow from the fact that Italy has managed to form a government, nearly two months after the election.

Latest FX News

JPY: The down-move in USDJPY seen in the second half of last week continued during the Asia session, with a move down to 97.50.   Move through 100 proving to be more elusive for the time being.

EUR:  Italy finally has a government nearly two months after the election.   Encrico Letta formed an Alliance with Berlusconi’s party, although Berlusconi will not serve in the new cabinet. Impact on euro limited beyond the initial bounce, given that Italian bonds were not unduly concerned with the political situation.

AUD:  Trading above the 1.03 level again, although the Aussie was dragging behind the moves seen elsewhere over the past week, overtake by sterling, the yen, kiwi and Canadian dollar.

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