Arising From The Euro Zone

USD is trading mixed against the majors - weaker against the commodity currencies (CAD, AUD, NOK, NZD) and stronger against most European FX. Uncertainty arising from elections in Europe saw an increase in risk aversion which is seeing UST yields lower. The decline in Treasury yields is also a result of Fed policy expectations as hopes for QE3 are supported following Friday's weak employment report. Despite the option of QE3 being on the table, we maintain the view that it will take a significant deterioration for the Fed to provide more stimulus. While both risk aversion and QE3 hopes depress Treasury yields, they have adverse effects on the USD. Risk aversion is supportive of the buck as investors seek safety in Treasuries and QE3 speculation weakens the dollar as it suggests the Fed ...

FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400) WORLD The lack of any economic data releases overnight allowed the US dollar to get back on its feet and reclaim some lost ground. Still tempering the US dollar’s upside is the cautious stance of Fed Chairman Bernanke, who said in a transcript of an impending television interview that “it’s far too early to declare victory” and while “the recent news has been good&I think we need to be cautious and make sure this is sustainable”. In response to a question about further easing, Bernanke noted “we don’t take any options off the table…we don’t know what’s going to happen in the future, and we have to be prepared to respond to however the economy evolves”. That said, there is nothing here that alters our view that the US recovery will be ...

FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400) WORLD The dollar-positive afterglow from Friday’s strong US payrolls report lasted into the Asia session on Monday. EURUSD is now firmly back on the 1.30 handle, and both AUD and NZD are struggling. This is partly due to the absence of overnight drivers given the empty calendar. But there are forces at work too – it is becoming increasingly clear that the psychology around the US dollar is changing. The dollar no longer strengthens only in the presence of risk aversion and now stronger US economic data is just as likely to do the trick. This change in character paves the way for further dollar gains over the coming months as market expectations for further Fed easing recede. Friday’s IMM positioning data shows that a longer term structural ...

Forex News and Events: The global risky rally sustained its earlier gains in Asian session and continued to push higher. Rejuvenated confidence on a the ability of Greece to secure the Troika second bailout package buoyed risk sentiment yesterday, pushing equities higher and pushed Treasury prices and USD lower. EURUSD climbed to 1.3287 from 1.3100 yesterday while AUDUSD jumped to 1.0844. Asian equities kept the optimism going led by a rally in Shanghai up 2.43% and Hang Seng up 1.47%. Weak Japanese trade numbers keep JPY under selling pressure as USDJPY rose to 77.16. In late NY session risk got a big boost from the headlines that the ECB was willing to make a concession and contribute to Greece debt reduction by exchanging Greek bonds with EFSF. And once again Greek government ...

(Reuters) - The euro ended little changed against the U.S. dollar on Thursday, but was on track to close out the year lower, as investors were unconvinced European leaders were anywhere close to a solution to the region's debt crisis. Market players said the looming threat of euro zone sovereign credit rating downgrades also kept investors on edge and any rally was viewed as an opportunity to lock in profits. Analysts also said the European Central Bank's first-ever tender of ultra-cheap three-year loans on Wednesday gave little support to the euro. Doubts remained over how much of the funds will be lent to boost the ailing euro zone economy or used to buy peripheral sovereign bonds as banks deleverage and cut back exposure to government debt. "European leaders are...not doing the ...

FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400) USD The Eurozone’s finance ministers’ conference call managed to secure fresh resources for the IMF, though again there was a distinct lack of unanimity. Only four non-Eurozone nations agreed to participate. It had been hoped that the fund’s resources could be boosted to EUR200 bn but instead only EUR150 bn was pledged. The IMF said it ‘welcomed’ the ‘substantial’ boost to its resources, though there are some strict conditions attached to prevent the impression that the funding lines via Eurozone national central banks is simply debt monetization by stealth. The Eurozone financial leadership yet again failed to agree upon an expansion in resources for the combined EFSF and ESM, which still stands at EUR500bn amid stiff German opposition. The ...

The euro fell on Monday as European Central Bank President Mario Draghi stressed the risks to euro zone economic growth arising from the region's debt crisis and dampened hopes for more aggressive bond purchases that have helped keep yields under control. The death of North Korean leader Kim Jong-il supported a safety bid for the U.S. dollar, with investors selling Asian currencies as well as the Australian and New Zealand dollars. His death over the weekend raised questions about who is in real control of the nuclear renegade state. In late afternoon trading, the euro was down 0.3 percent at $1.29980 against the dollar, within a cent of the 11-month low touched last week. The euro, which fell on Monday after two days of gains, posted a low of $1.29830 on trading platform EBS. An ...

(Reuters) - Oil fell back towards $105 a barrel on Thursday, as European debt troubles persisted and a recovering dollar helped erase early gains made in reaction to the previous session's near-four-percent plunge in crude markets. Oil markets were also constrained by the lack of agreement by the Organization of Petroleum Exporting Countries (OPEC) on individual output allocations limiting oil supply. "Continuing worries about the euro zone debt crisis are keeping gains limited today, despite the positive U.S. data on jobless claims and New York manufacturing activity. Investors are reassessing the market after yesterday's sharp drop" said Chris Dillman, an analyst at Tradition Energy. Brent crude was up 74 cents at $105.76 by 1528 GMT, after settling $4.48 a barrel lower on Wednesday, ...

(Reuters) - Oil prices climbed towards $106 on Thursday, supported by a weaker dollar and renewed buying interest after the steepest plunge in nearly three months wiped four percent off crude markets in the previous session. Rekindled fears about Europe's debt crisis helped trigger a downturn across asset classes on Wednesday, while oil market losses were compounded by the lack of agreement by the Organization of Petroleum Exporting Countries (OPEC) on individual output allocations limiting oil supply. "The OPEC outcome will have little influence on policy and net supply but sentiment-wise contributed to the combination of events that led to weakness yesterday," said Gareth Lewis-Davies, a senior energy strategist at BNP Paribas. "This morning, oil is moving in response to a reversal in ...