Weekly Forex Outlook: Euro (EUR) down ahead of EU Summit

on Dec 10, 2011
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On 10 December 2012, the single currency declined versus most of its major peers ahead of a summit of EU leaders, gathering on December 13-14 to discuss a roadmap for the Eurozone. The euro dropped near a two week low against the US dollar after Italy’s Prime Minister Mario Monti said that he intended to resign, causing concerns that a change in government will complicate Italy’s way out of the debt crisis. Although it rose against the euro, the US dollar posted a slight decline versus the yen and demand for the greenback was generally limited due to speculation that the US Federal Reserve may announce further bond purchases at its upcoming policy meeting.

**Euro Sliding versus Major Peers**
As reported by Reuters, the euro dropped approximately 0.3 percent to $1.2880, near a two-week low of $1.2876 set on Friday. Later on Monday, however, the single currency traded at $1.2908, down about 0.2 percent from late US levels. The euro slid after Italy’s prime minister told the head of state that he intended to resign. “If Monti’s pro-euro stance is to back off, that should raise concerns about the euro,” noted Junya Tanase, chief currency strategist at JPMorgan Chase (NYSE:JPM), as quoted by Reuters.

Bloomberg reports that the single currency lost ground against the yen as well, sliding 0.2 percent to ¥106.44. “In the near term at least, it does look like the euro wants to go lower,” commented Imre Speizer, a strategist at Westpac Banking Corp (ASX:WBC, NYSE:WBK), as quoted by Bloomberg, adding that Mr Monti’s announcement impacted the euro “because it’s evidence of more political instability within the zone.”

**Dollar Slips ahead of Fed Policy Meeting**
!m[Greenback (USD) Supported By US Employment Data](/uploads/story/996/thumbs/pic1_inline.png)On December 10, Reuters reported that the US dollar slightly weakened against the yen, sliding to ¥82.41. While the dollar was supported by data which signalled that the US unemployment rate fell to near a four-year low of 7.7 percent, a drop in US consumer confidence had a negative impact on the greenback. In addition, the dollar’s upside was also limited by speculation that the Fed would announce additional bond purchases. “Despite a drop in the unemployment rate, we expect the Fed to convert the expiring Operation Twist programme into an outright purchase programme, with a purchase distribution similar to the current programme,” Barclays Capital (LON:BARC) analysts noted, as quoted by Reuters.

The Federal Open Market Committee will meet on December 11-12 for the final time in 2012, with the policy meeting outcome likely to set the tone for the greenback during the rest of the week.
**The Aussie Falls on China Export Data**
The Australian dollar (AUD), which last week advanced despite the decision of the Reserve Bank of Australia (RBA) to cut its key rate, lost ground on December 10 on account of disappointing export data from China. As reported by Reuters, China’s exports growth slowed sharply, dropping 2.9 percent in November, much lower than expected, with analysts forecasting a nine percent increase.
Bloomberg reports that following the news about China’s exports, Australia’s dollar slid 0.1 percent against the greenback to $1.0482, after touching $1.0516 on December 6, the highest since September 21.

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