The Euro was little changed earlier today, as it appears “capped” with rising doubts about whether policymakers can reach an agreement for action in September, which would provide some relief to debt stricken Euro zone countries such as Spain and Italy.
I expect the Euro to reverse in the next few days as to now, traders have been focusing on only positive indicators which could change.
A reality check is now due after the Euro has remained buoyed by hopes that the European Central Bank (ECB) would start buying bonds of the struggling Euro zone members next month. I expect the market to shift its focus back to the problems facing Euro zone policymakers as they resume talks after summer holidays.
Yesterday Germany’s Bundesbank stepped up its resistance to an ECB plan to purchase billions of Euros worth of Spanish and Italian government bonds.
The French President, Francois Hollande, and German Chancellor, Angela Merkel, will meet on Thursday. On Friday Greece’s Prime Minister, Antonis Samaras, arrives in Germany for talks and is expected to lobby for a two-year extension of austerity measures in order to soften their negative economic impact.
If Greece and the EU cannot reach an agreement, in such case, we could see speculation about Greece’s exit from the Euro zone rekindled.
The Euro stood little changed earlier today at $1.2350, down from its August 6th peak of $1.2440.
The Dollar was trading at 79.41 Yen, down from Monday’s five week high of 79.66 Yen.
On Wednesday the Federal Reserve is due to publish minutes of its two-day meeting that ended on the 1st of August. The Fed, which has pledged to keep its benchmark rate near zero through 2014, has refrained from adding to the $2.3 trillion in asset purchases it has already made to support the economy. It will next meet on the 12th and 13th of September.
The Aussie meanwhile has underperformed against other risk sensitive currencies recently, being down 0.2% so far in August, having only gained slightly after the minutes of the RBA’s latest meeting gave no hint of further easing. The Aussie earlier was at $1.0475, up 0.3% on the day.
All the best and trade safe.
Erik