FOREX: US Dollar Recovery Hinted as S&P 500 Index Futures Slide

Talking Points

• US Dollar Slides on Rumors Germany, France Agreed on EFSF Expansion
• S&P 500 Futures Drop, Hinting Return to Risk Aversion is Around the Corner
• Bank of England Minutes to Reveal Extent of Dovish Shift After QE Reboot

The US Dollar is once again the defensive as markets react to a story in The Guardian claiming that Germany and France have reached an agreement to boost the EFSF bailout fund to 2 trillion euro, stoking risk appetite amid renewed hopes that the EU debt crisis will be contained and weighing on demand for the safe-haven benchmark currency. Markets seemed to shrug off countervailing news that Moody’s downgraded Spain’s credit rating once again.

Interestingly, S&P 500 stock index futures warn optimism may prove fleeting, with contracts tracking the equity benchmark index and proxy for market-ride investor confidence down sharply in early European trade. The setup hints that the safe haven demand may recover as Wall Street comes online, offering a life-line to the greenback against its sentiment-linked counterparts.

Looking at the economic calendar, minutes from October’s Bank of England policy meeting headline the docket. Bank Governor Mervyn King and company rebooted the quantitative easing program earlier this month, and the markets will be keen to learn the voting pattern on the rate-setting MPC committee that produced the unforeseen outcome with an eye on what can be expected down the road.

Related: Japanese Yen Unaffected By All-Industry Activity Index

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

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