A ray of hope appears for the Euro as Merkel backs ECB bond buying plan as UK housing figures slump

Tom Tong07/Aug/2012Currency Updates

EUR

Yesterday, German Chancellor Angela Merkel backed the ECB’s bond buying plan announced last week. This has spurred speculation that the ECB will act to cut the dangerously high borrowing costs for Spain and Italy. The only Euro figure released yesterday was the Eurozone Sentix investor confidence index and it came in only slightly better than forecast at -30.3; the figure has now been falling consecutively for five months, embodying the uncertainty in the Eurozone. Although the figure was not significant enough to rub the relatively positive shine on the euro from the end of last week and with the anticipation that Spain might seek a full scale bailout, the Euro edged higher yesterday.

Today there is no top tier data sets released for the Euro but there is a selection of medium and low tier data that could bring some movement in the Euro market. Italian industrial production figures are out at 8am, followed by the Italian GDP forecast at 10am. The German factory orders are set to be released at 11am and are forecasted to have fallen.

GBP

It was a quiet and weak start for the pound on Monday with only negative low tier data released, showing a fall in house prices. The negative start for the pound combined with a glimmer of light for the Euro led to the Euro trading at a one-month high against the pound. The only data released for the UK today is at 9.30am, industrial production figures and manufacturing production figures. It is a mix of low and medium tier data, the point to be made regarding the sets is that they are forecasted to fall substantially. It enforces the negative outlook on the UK economy and can put downward pressure on sterling this morning, especially if the forecasts are overshot.

USD

A similar story goes for the greenback yesterday with no significant data released and a very stagnant market followed. The US dollar stayed fairly unchanged against most pairs and only lost out significantly against the yen.

Japan’s finance minister stated this morning that it will extend its dollar loan programme to Japanese companies for another six months as it tries to curb the strengthening yen, which has a negative effect on exports. Later today in the afternoon and evening there is some low and medium tier data released, but since it’s after our trading hours the effects will not be seen until tomorrow. The Fed’s speech on financial education tonight at 7.30pm is probably the most anticipated event in the US calendar today. Investors are waiting for Bernanke to act but it’s most likely they will have to wait until the Central bank’s annual conference at the end of the month.

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Written by Tom Tong

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