EURO Climbs as Markets Wait for the ECB

The rout of the USD continued throughout the Asian session and the momentum isn’t letting up during the European. As stated yesterday, even though technical indicators are signaling that the USD is currently oversold, we are going to stick to our fundamental guns. Right now – fears of another round of global QE and endless liquidity are priming the risk-taking pumps and the market is clearly turning a blind eye to new sovereign risks coming out of the EU. There are significant fundamental risks still firmly entrenched in the Euro. Ireland’s credit rating was downgraded yesterday as Fitch lowered the Emerald Isle’s rating to A+, the worst assessment among the three major agencies. Further, the European Commission warned yesterday that ’06 – ‘09 Greek debt & deficit data would probably need to be revised higher in the near future. Even though Euro risk is steadily increasing – on the EURUSD pair, the USD remains the sell this week. USDJPY traded down to 82.25 with no harsh words from Japanese policymakers. Interestingly, selling pressure on USD vs. many Asian currencies saw another day of central bank intervention, albeit smoother than in previous days. The AUDUSD rallied higher past 0.9900 as a strong jobs report showed that full time employment gained 55.8k and total employment jumped 49.5k. Rate markets are now pricing in a full 25 bps hike as traders quickly adjust their calendars – expecting a nice gift from the RBA in December. Given the strong growth story in Australia, fuelled in part by commodity prices and domestic demand, the RBA may still have lots of work to do in 2011 which will give the AUD even more upside potential and increase yield differentials into the new year. On that note, commodities will continue to climb with base and precious metals leading the way. Gold is still the major story climbing to $1359.40 / oz at the time of writing, in the current environment, we’ll probably see $1400 before the end of the year. Copper and Zinc followed closely on Gold’s heels but with China still on holiday, Friday’s Asian open will likely introduce further upside due to pent-up physical demand. For the Bank of England, we suspect that it will be a non-event as a vote for no change …

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EURO Climbs as Markets Wait for the ECB

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