EUR/usd
The traders are taking profits on the euro's decline. It is clearly seen in eurusd and EURJPY. And these are the main pairs in which the flight from the weak euro into “liquidity” was especially strong. Yesterday they were jerking up after the fruitless attempt to break through the local lows. That was exactly profit-taking, not an attempt to reverse since there was no good news from Europe. Quite the contrary, the German ZEW came out much worse than expected. The economic sentiment indicator dropped down to -15.7, thus bringing the modest growth of October to naught and the current situation indicator landed at 5.4, last seen in mid 2010. We are getting more and more evidence that the German economy is heading for recession. The half-dead France did it a year ago. We've touched the GDP topic on purpose. Tomorrow morning the preliminary stats on the GDP growth in 3Q will be released. Now the markets expect that Germany will demonstrate a 0.1% growth and the whole euro zone will lose 0.2%. However, it may prove to be much worse. For this reason the current situation in EURUSD can be considered to be just a mere consolidation before a new strike down. The US law-makers returned to the fiscal cliff issue. Obama hinted at the possibility to reach a compromise, announcing that he is ready to extend tax credits for 98% of the population, but won't allow preserving them for the rest 2% made up by the richest people. In the meantime, the hole in the US budget remains huge. For four years in a row the deficit has exceeded a trillion dollars. The budget statistics for October released yesterday proved to quite poor. The budget deficit made $120bln against 98.5bln a year ago. yet we can see some progress here. Last financial year, which ended in September, the deficit totaled 1.1bln as compared to 1.3bln a year ago.
GBP/USD
The favourable inflation statistics couldn't support the sterling for long. Already by the evening gbpusd had lost the most part of its gains, but still managed to close out the day with a minimal increase. Now trading is at 1.5880. In the morning traders abstained from any stakes in the anticipation of employment statistics. The latter proved to be moderately poor. The unemployment level and the number of the unemployed have decreased, but the number of people getting unemployment benefits has grown by 10.1K and the average earnings (bonuses included) have made just 1.8% y/y against the same time period a year ago. Yet yesterday we learnt that inflation had sharply accelerated to 2.7%. It points to the actual reduction of spending. Later we expect the Inflation Report, which will highlight the BOE's opinion on the probable price movement. King's speech may have a profound influence on the pound.
USD/JPY
usdjpy is confidently marching up, now being already at 79.75. The reasons for that were described yesterday – Japan is in dire need for the cheap currency, which is sure to ease the tension around the fiscal policy. And this means that the Finance Ministry won't relieve the pressure on the CB, demanding for further active measures to stimulate the yen lending and to cut the rate of the national currency for better competitiveness of Japanese goods.
AUD/USD
While other countries' economies are in trouble, the blessed aussie is making its way up. The currency is in demand as the Australian economy is the best among the countries with the AAA rating. It should be mentioned here that now the developing countries are building up their reserves not as actively as in 2009, and on the other hand the Au debt market is not that deep. Apparently, the bulls are targeting the level of 1.06. Well, who knows, probably the third try to clear this height after the failures in August and September will finally be successful.
