Worrying about a European recovery has very much come to a standstill, with trading ranges nothing to write home about. The Euro has extended its European morning rally, moving the price above its 10-DMA (1.3540), triggering some weaker stop-losses, and eyeing the technical orders on top where there are EURÃ¢â‚¬â„¢s to go. Thus far, regional trading ranges have been relatively contained, however, the market is short EURÃ¢â‚¬â„¢s long dollars and that, together with the lack of meaningful government bond issuance this week is a Ã¢â‚¬Å“proper recipe for a EUR short squeezeÃ¢â‚¬Â.
So far, any EUR short covering has been rather modest. Even the credit rating agencys giving a temporary thumbs up has had a limited risk effect. Yields at this mornings Spanish auction were sharply higher and is yet to have an impact on the EUR outright. Any pop above the O/N high could generate a bullish follow through, but further failure at these levels will only encourage comfortable renewed short selling.
Euro-zone debt concerns are being overlooked so far intraday, perhaps we may have to leave it up to North America? That would be a switch for the first time in probably two-weeks. Wider risk appetite remains constrained following the Ã¢â‚¬Å“super committeesÃ¢â‚¬Â failure and the upcoming Asian and US holidays. With month-end next week, the market will be witnessing panic, illiquid premium buying and selling, confusing even more the whole market thought process. ItÃ¢â‚¬â„¢s difficult enough trying to keep a handle on the legal requirements and mandate of the ECB and all the pawn brokers that are offering varying opinions on what the Ã¢â‚¬Å“lender of last resortÃ¢â‚¬Â role should be.
These markets are lacking leadership. All the important players continue to wait and still there is Ã¢â‚¬Ëœno horizonÃ¢â‚¬Â. The worlds largest FX bank has raised its forecast for next year and indicated that the most likely scenario was that the Ã¢â‚¬Å“EUR remains intact in its current form despite the ongoing debt crisisÃ¢â‚¬Â. The currency will eventually end up trading close to here ($1.35), previously they had been targeting $1.23, however it does expect the EUR to at least Ã¢â‚¬Å“dipÃ¢â‚¬Â to their previous target level.
This morning we get Q3 US GDP. The market is expecting a headline to be revised lower (+2.4% vs. +2.5%), but with better details. Later in the afternoon its the FOMC turn, the minutes may provide further indications on the prospects for additional easing measures.
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