Fundamental Headlines
• Strong Demand For Spanish Bond – Wall Street Journal
• Europe’s Markets Post Mild Gains – Wall Street Journal
• Markets Upbeat on Hopes For ECB Action- Financial Times
•Fed May Be “Central Bank of the World” After UBS, Barclays Aid - Bloomberg
•Trichet “Held Hostage” As Markets Heap Pressure On ECB Act - Bloomberg
EURUSD: Euro-Zone economic activity in the third quarter rose 0.4 percent after climbing 0.4 percent the quarter prior, which was in line with expectations, while the annualized rate climbed 1.9 percent. The advance in GDP comes on the back of a rise in exports and a fall in imports. Indeed, this report bodes well for the 16 member euro area for the short term but the growth is likely to come back under pressure in the coming months as governments in the bloc are expected to implement tough austerity measures in order to battle their high budget debts. At the same time, increased uncertainty about the regions outlook will keep a lid on employment. Indeed, the spotlight is on the ECB rate decision and Trichet’s press conference which will be released at 12:45 and 13:30 GMT respectively. Following Ireland’s bailout of 85 billion euro’, market participant’s fear that contagion will spread to Portugal and Spain. It is worth noting that Spain is in a good position to hurdle over market obstacles due to the fact that its government debt is slightly above the E.U. rule. Furthermore, Spain’s government has a parliamentary majority, thus, it can meet its deficit reduction target by tighten fiscal policy further. All in all, the ECB will likely keep rates unchanged at 1.00 percent, but the Jean-Claude Trichet’s press conference may dictate EUR price action as traders expect policy makers to reverse its recent decision to phase out short-term liquidity support to banks in 2011 and add purchases of government bonds.
Written by Michael Wright, Currency Analyst
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Michael Wright is the author of FX Headlines, Fundamentals vs. Technical’s, Weekly Spotlight, and Forex Trading Weekly Forecast
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