London Session Recap

Daily Forex Fundamentals | Written by Forex.com | Dec 08 09 11:16 GMT |

Dollar buying early in the European session failed to find any follow through. EUR/USD pushed down to around USD1.4783 before EUR buyers stepped in and took the EUR back towards its overnight highs around 1.4860. Concerns that Dubai World is struggling to restructure its debt had weighed heavily on Dubai stocks this morning. Asian stocks were also bias lower overnight. In contrast, risk appetite clawed back a little ground in Europe allowing most equities to push a touch higher. Bernanke’s reminder that there are significant headwinds facing the economy is a strong indication that US interest rates will be low for some time yet. This appears to suggest that there may still be life in the USD carry trade and that the USD’s inverse correlation with the carry trade may not be over yet. That said, last week’s payrolls data is a strong reminder that this trade does have a limited shelf life indicating that significant upside in EUR/USD is still likely to be limited near-term. Forthcoming data releases will be crucial for the USD from this point. A wave of better US data will likely to needed to reassert the threat of Fed tightening and to stop EUR/USD creeping back above the 1.4900 handle. Sterling was shaken early in the London session following a comment from Moody’s that the US and the UK may test the boundaries of the Aaa rating in view of the deteriorating position of their budget deficits. More bad news for the UK came with the publication of worst than expected production data. Manufacturing remained flat on the month which will further fears that the sector could be stalling. This news followed a report from the BRC that annual growth in retail sales slowed in Nov. Some relief was granted by another good set of house price data but EUR/GBP trended higher through the morning, presently stalling in the 0.9090 area. USD/JPY has continued to trend lower, finding support at JPY88.60. The Japanese government’s announcement of a USD 81 bln fiscal stimulus package was met with criticism of it being too little too late. That said, the appallingly large debt burden in Japan remains a considerable constraint to further spending. Japan’s Tankan report is due next week. Key focus today will be the BoC policy meeting. The market will be looking to see if the BoC stray from its reassurance to keep policy on hold until the middle of next year. Canadian housing starts are also due. Forex.com http://www.forex.com DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.