A combination of elevated concern in the Eurozone and improving prospects for a US recovery have been the primary contributors to the latest rally in the US Dollar. Friday’s downgrade of Ireland by Moody’s and subsequent IMF comments of serious contagion risks, weighed heavily on the Euro, which managed to erase earlier gains and reverse sharply below critical shorter-term support at 1.3165. This now exposes a key platform base by 1.2970 over the coming sessions. Also seen influencing price action has been the passage of the US cut extensions and accompanying stimulus measures which have eliminated some political uncertainty to benefit the USD, while failure at the EU Summit to address short-term debt concerns has not helped the Euro’s cause.
Currencies have mostly been consolidating Friday’s moves in the early week, and today some of the attention has been placed on the BOJ 2-Day meeting which kicks off, and the reemergence of geopolitical risks, with South Korea saying that it will go ahead and conduct live-fire drills in disputed territory with North Korea.
While we are not particularly looking to take any positions in this lightened end of year trade, our watch of list of overextended currency crosses due for some decent corrective reversals include; Eur/Chf, Aud/Nzd, Gbp/Chf, Eur/Aud, and Gbp/Aud. All of these cross rates have seen considerable one sided moves and technical studies are certainly suggesting that we could soon see some form of a trend change.
Looking ahead, the economic calendar is fairly light on Monday, with German producer prices (0.3% expected) at 7:00GMT, followed by the Eurozone current account at 9:00GMT. The US Chicago Fed National Activity index and Canada wholesale sales (0.7% expected) are then out at 13:30GMT, with Eurozone consumer confidence (-9.0 expected) rounding things out for the day at 15:00GMT. US equity futures and commodities prices are moving in different directions, with equity futures tracking lower while commodities are bid.
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