Currency Briefing: Euro mixed in thin trading

on Sep 3, 2013
Listen Tuesday, September 3rd:_ German Chancellor Angela Merkel and challenger Peer Steinbrueck engaged over the weekend in their first and only debate ahead of the German Sep 22nd elections. Steinbrueck, well behind Merkel in recent polls, has been critical and detailed of Merkel`s role in different bailout packages given to financially stressed euro zone countries.

Steinbrueck scored points during the debates against the chancellor, saying that her approach to confronting the crisis that dominated her second term has failed while domestic inaction has resulted in a “standstill”. Just one of three polls taken after the 90-minute appearance found Steinbrueck the winner.
The German economy is “strong” with more in employment than ever before and higher tax revenue than at any time, Angela Merkel said, warning that Steinbrueck`s platform of tax increases threatened putting German prosperity at risk.

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With markets closed in the U.S. and Canada and trading volumes thin yesterday, the ECB Board member Benoit Coeure reminded of the forthcoming ECB meeting later this week by saying that the OMT bond-buying program will not be used to reduce the cost of a country`s debt below its true value. “Spreads should continue to reflect the underlying country-specific economic fundamentals, fiscal positions and market risk perception,” he said in a speech in Berlin on Monday.

The ECB announced the unprecedented Outright Monetary Transactions bond plan a year ago as opinions that the euro area would break apart increased. While the legitimacy of the program is under scrutiny at Germany`s highest court, the reassurance for financial markets that OMT has produced in the past 12 months has helped the euro area emerge from its longest-ever recession.

The ECB, the Bank of England and the Bank of Japan are all scheduled to issue monetary-policy decisions later in the week, though reports are saying none of the four were likely to make any interest-rate movements.

The euro continued its bearish move towards 1.3184 on Monday and a break below the Aug 30 low at 1.3173 would allow it to head south towards the 200-day MA at 1.3143. Syria, Fed tapering, and the ECB meeting will all weigh on the euro strength in the coming days with selling pressures in view for now.

After the euro area Manufacturing PMI released on Monday, markets will be closely watching the U.S. ISM Manufacturing PMI for August, scheduled for 15:00 BST on Tuesday. The July reading of 55.4 per cent reflected the sixth month of growth and the highest overall PMI release in the first seven months of 2013. The ISM manufacturing index shows business conditions in the U.S. manufacturing sector and is considered a significant indicator of overall economic conditions.
Without doubt, the most important indicator for U.S. economic health this week will be the non-farm payrolls on Friday. The data today however is expected to be the main market driver able to push Fed sentiment toward or away from the anticipated tapering. The ISM PMI for August is expected to come in at lower level in comparison with the prior month which could somewhat disappoint the market if the reading comes out at less than the consensus forecast.


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