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Markets Steady, EUR/USD Heading Back to 1.3

By  |  Market Overview  |  Dec 22, 2011 08:33AM GMT  |   Add a Comment
 
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Markets are generally steady in Asian session today. Risk appetite failed to sustain overnight as traders refused to commit to their positions ahead of thin holiday trading period. Weak home sales data and Fitch's update report on US fiscal projections also weighed down sentiments a bit. EUR/USD is back below 1.31 level again and judging from these few days price actions, there selloff isn't over yet and we'll more likely seen another break 1.30 again, probably as markets return from holiday next week.

Fitch published a special report of "US Public Finances, An Update" yesterday that detailed the projections that unpinned the outlook downgrade of US's AAA sovereign rating back in November. Fitch expects federal debts held by the public will exceed 90% of GDP by the end of this decade. And that's based on the assumption that there will be no spending and tax reforms to address rising cost of health and security spending. Fitch noted that the rising debt burden is not consistent with the AAA rating. The rating agency could make a downgrade decision in the first half of 2013 unless the incoming Congress and administration in 2013 would "formulate a credible plan to reduce the budget deficit and stabilize the federal debt burden".

In Europe, Italian Senate is expected to give final approval today the EUR 30b emergency budget of Prime Minister Monti. The budget include pension overhaul and levy on primary residences. Approval should be a matter of formality as the technocrat government has overwhelming majority in the houses. ECB President Draghi will hold a press briefing to day after meeting of the European Systematic Risk Board.

Swiss Finance Minister Eveline Widmer-Schlumpf said in hearing in the lower house that a panel is still considering measures to weaken the Franc, including capital controls and negative interest rates. There have been continuous speculations that SNB would implement new measures including raising the EUR/CHF floor. But so far, SNB disappointed markets every time and EUR/CHF remains bounded in range below 1.25.

On the data front, New Zealand Q3 GDP rose more than expected by 0.8% qoq. UK and US Q3 GDP final revision will be released today. From US, initial jobless claims are expected to rise back slightly to 375k after last week's surprising fall to 366k. U of Michigan sentiments December final, leading indicators and house price index will be featured.
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