One Stop Centre of Financial Market Trading blog

Previous session overview

The euro fell against the dollar Monday as investors pivoted their focus to euro-zone stresses after last week's U.S.-centric agenda.

Credit default swaps or the cost of insuring against bond defaults went up on the sovereign debt of nations on the periphery of the euro zone, prompting many investors to pare their more aggressive bets on the common currency, said analysts.

The euro decline is seen as a correction after the euro posted strong gains against the dollar on expected Federal Reserve quantitative easing, analysts said. The second round of stimulus, which floods the economy with dollars, was announced last week.

The euro fell 0.7% early Monday against the greenback after more bearish CDS bets placed on Irish, Portuguese and Spanish debt.

The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 76.938 from 76.606.

The Canadian dollar is lower as the U.S. dollar continues its recovery against more risk-sensitive currencies.

The U.S. dollar is at CAD1.0043 from CAD1.0007 late Friday.

Market expectation

Traders will be closely watching European Union commissioner Olli Rehn's visit to Dublin Monday, said analysts. Rehn is visiting the Irish capital to discuss the country's plans for fiscal austerity.

Analysts were largely expecting a much quieter trading week with no major U.S. indicators until Wednesday, when weekly jobless claims and new U.S. trade deficit data are due.

Tue euro at USD1.3936 is pointed down to support at USD1.3732. Resistance is USD1.4101.The dollar, at JPY81.18, would be going for JPY79.75 if it moves below JPY80.22 Resistance is JPY81.57, technical analysts said.

Nov 08	Count.	Event	For	Unit	Imp.	Act.	Cons.	Prev.
00:00	JP	BoJ monthly report
05:00	JP	Leading indicator (Prelim)	Sep	index		98.9	99	99.5
06:45	CH	Unemployment Rate	Oct	%		3.5	3.6	3.5
07:00	DE	Current Account (nsa)	Sep	EUR bn		14	9	5
07:00	DE	Trade Balance	Sep	EUR bn		16.8	12	9
08:30	SE	Minutes of prior (25th Oct) Monetary Policy Meeting
11:30	EU	ECB President Trichet gives press conference at BIS
14:00	EU	Eurogroup of FinMins Head Junker speaks to the European Parliament Economic and Monetary Committee
14:10	EU	ECB Vice President Constancio gives speech at European Parliament
15:30	US	Federal Reserve Bank of St. Louis President Bullard speaks to the New York Analysts Society on the possibility of deflation.
17:40	US	Federal Reserve Bank of Dallas President Fisher speaks on "The Impacts of Financial Reform on the road to Economic Recovery" at the Association for Financial Professionals Executive Institute Conference"
19:00	EU	EU President Van Rompuy speaks in Belgium
19:30	US	Federal Reserve Board Governor Warsh speaks on "Invest in America" before the Securities Industry and Financial Markets Association
20:00	EU	EU Monetary Commissioner Rehn and Irish FinMin Lenihan hold a press conference
23:50	JP	M2 Money Supply	Oct	% y/y			2.8	2.8
23:50	JP	Bank Lending Data	Oct	% y/y				-1.8
23:50	JP	Current Account	Sep	Y bn			1684.3	1114.2

Previous session overview

The euro rose against the dollar in Asia on Tuesday due to knock-on effects from the Australian dollar's surge, which was propelled by the Reserve Bank of Australia's surprise interest-rate hike.

The central bank tightened its benchmark cash rate by 25 basis points to 4.75%, a move traders said was a big surprise. Many market participants had believed the RBA would leave rates unchanged.

While the Australian currency rose sharply, the euro also benefited from the rate hike as the two currencies are closely correlated.

The Australian dollar rose to USD0.9990 from USD0.9881 and to JPY80.43 from JPY79.63 before the RBA's announcement. The euro was at USD1.3927 and JPY112.16 as of 0450 GMT from USD1.3885 and JPY111.91 on Monday in New York.

The U.S. currency was at JPY80.52 at 0450GMT from JPY80.60, and dealers said it could fall below the all-time low of JPY79.75 later in the global day.

The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 77.090 from 77.294.

Sterling, now higher against the dollar, is likely to consolidate with risks skewed lower, while investors await the Fed's move and how it could impact the pound, which itself is vulnerable to weak U.K. housing data. Against the euro, the pound is now a tad lower, with the cross buffeted by reduced expectations the Bank of England will announce more bond purchases Thursday, despite recent data.

Market expectation

Dealers said the dollar should keep weakening against not only the euro but also the yen, as short-term speculators are decreasing their holdings of the greenback ahead of a two-day Federal Open Market Committee meeting ending Wednesday.

Many investors think the FOMC will take additional easing measures to prop up the economy. This should push down yields on U.S. bonds and make the U.S. currency less attractive.

EURCHF is now in a bullish trend, with near-term upside potential seen to 1.3924. Above that area, there is scope for gains to 1.4041, say technical analysts. Near-term support is pegged at 1.3540.

European stocks are expected to open largely unchanged Tuesday after an uninspiring close on Wall Street Monday and little direction from Asia overnight, but eyes will be on a slew of earnings in the U.K. ahead of key events in the U.S.

Nov 02	Count.	Event	For	Unit	Imp.	Act.	Cons.	Prev.
03:30	AU	RBA Interest Rate announcement
07:00	IE	Manufacturing PMI	Oct	Index				48.4
08:00	ES	Unemployment	Oct	k			82.8	48.1
08:00	GB	Halifax House Price Index (2nd-6th)	Oct	% 3m y/y			0.8	2.6
08:00	GB	Halifax House Price Index (2nd-6th)	Oct	% m/m			0.6	-3.6
08:15	ES	Manufacturing PMI	Oct	Index				49.6
09:00	GR	Manufacturing PMI	Oct	Index				44.7
18:00	NO	Norges Bank Governor Gjedrem gives speech at the Polytechnic Association
19:00	IT	Budget Balance	Oct	EUR bn				-12.7
22:30	AU	AIG Performance of Services	Oct	index				45.6