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FOREX: US Dollar Slumps as Sarkozy, Merkel Promise Debt Crisis Fix

FOREX: US Dollar Slumps as Sarkozy, Merkel Promise Debt Crisis Fix

2011-10-10 05:55:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • US Dollar Slumps as S&P 500 Futures Soar, Sapping Safety Demand
  • Sarkozy, Merkel Promise Debt Crisis Fix by November 3 G20 Meeting
  • Trichet Comments at ESRB Hearing May Reveal Fragility of EU Banks

The US Dollar came under heavy selling pressure in overnight trade as S&P 500 stock index futures pressed higher, sapping demand for the go-to safe-haven currency. Contracts tracking the equity benchmark rose as much as 1.3 percent to start the trading week, with optimism seemingly driven primarily a joint pledge from German Chancellor Angela Merkel and French President Nicolas Sarkozy to devise a far-reaching plan to recapitalize the region’s banks, mend economic governance, and resolve the turmoil in Greece by the November 3rd G20 summit.

On balance, another set of bold promises with (as yet) no specifics out of the Euro Zone seems hardly encouraging however, and the upswing in sentiment may prove fragile. Indeed, the loud chest-pounding pronouncement of vows to squash the crisis by key EU officials that inevitably fizzle and end up as little more than rhetoric has become an almost weekly (if not daily) affair. As such, it seems unlikely that traders will find lasting comfort in yet another assurance that this time really is different until something truly tangible comes across the wires.

The economic data calendar is uneventful, with only second-tier releases on tap in Europe and an empty docket in the US with light volumes expected as bond markets remain closed for the Columbus Day holiday. Given the focus on EU crisis management, the only item of note until the week begins in earnest on Tuesday will be comments by outgoing European Central Bank President Jean-Claude Trichet at a hearing on the European Systemic Risk Board (ESRB) in Brussels. With so much of the EU’s current focus on bank recapitalization, any candid insight on the degree of fragility of the region’s lenders from a Trichet ready to pass the leadership of the ECB to Mario Draghi at the end of this month may prove interesting.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:01

GBP

Lloyds Employment Confidence (SEP)

-67

-

-66

0:30

AUD

ANZ Job Advertisements (MoM) (SEP)

-2.1%

-

-0.7% (R-)

5:30

AUD

Foreign Reserves (A$) (SEP)

44.9B

-

43.8B

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:00

EUR

German Exports s.a. (MoM) (SEP)

1.1%

-1.9%

Low

6:00

EUR

German Imports s.a. (MoM) (SEP)

0.6%

-0.5%

Low

6:00

EUR

German Trade Balance (€) (AUG)

9.0B

10.4B

Medium

6:00

EUR

German Current Account (€) (AUG)

5.0B

7.5B

Low

6:30

EUR

Bank of France Business Sentiment (SEP)

-

98

Low

6:45

EUR

French Industrial Production (MoM) (AUG)

-0.7%

1.5%

Low

6:45

EUR

French Industrial Production (YoY) (AUG)

2.3%

3.7%

Low

6:45

EUR

French Manufacturing Production (MoM) (AUG)

0.2%

1.4%

Low

6:45

EUR

French Manufacturing Production (YoY) (AUG)

3.7%

4.2%

Low

8:00

EUR

Italian Industrial Production s.a. (MoM) (AUG)

0.2%

-0.7%

Low

8:00

EUR

Italian Industrial Production w.d.a. (YoY) (AUG)

-2.7%

-1.6%

Low

8:00

EUR

Italian Industrial Production n.s.a. (YoY) (AUG)

-

-4.6%

Low

8:30

EUR

Euro-Zone Sentix Investor Confidence (OCT)

-18

-15.4

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3318

1.35850

GBPUSD

1.5411

1.5767

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

To contact Ilya, e-mail ispivak@dailyfx.com. Follow me on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com

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