EUR/USD has been creeping higher again in European this morning despite a push below EUR/USD1.4850 overnight on fears that European officials may speak out against EUR strength. Sterling is looking shaky again today following last week's squeeze higher. EUR/GBP is back above 0.9150 as the market realises that last week's inferences that QE was off the table may have been a hasty conclusion. Gains in stocks European stocks this morning are reflective of robust risk appetite which has also supported the AUD, NZD and the CAD vs the USD.
Eurogroup leader Juncker indicated last week that the EUR's gains may be discussed at today's finance ministers meeting. Fears that there would be further verbal intervention against EUR strength had weighed on the USD overnight though with the market sceptical about the risk of actual intervention in support of the USD, EUR/USD has resumed its push higher. To the extent that verbal intervention and the fear of verbal intervention has slowed the pace of the USD's fall vs the EUR, policymakers should be credited with some success. However, with risk appetite continuing to repair and with the outlook for the USD marred by low rates and the twin deficits, further downside pressure near-term looks likely. Risk appetite this week will be dominated by Q3 earnings with about 240 US companies lining up to report this week. Disappointment on this front would likely buy a reprieve for the USD.
Risk appetite and a comment from an RBA official that it was appropriate that RBA rates move to more normal levels has drawn the AUD and the NZD higher today. However, another rate hike from the RBA in Nov is already well priced in and AUD/USD remains below the 0.9275 recent high. In tune with the gains in the AUD, USD/CAD edged back below the 1.0350 level this morning, we see risk of steady policy at tomorrow's BoC policy meeting.
The weekend press indicated that BoE policymaker Posen may support an extension to QE. This has thrown cold water on last week's inferences that QE may be paused next month.
EUR/GBP has retreated back above the 0.9150 level. Today UK data releases were confined to a positive housing survey from Rightmove. While stability in the housing sector is encouraging, this week's release of Q3 GDP data is likely to be a more crucial determinate the near-term tone of the pound. Disappointing Q2 data was a crucial factor in the pound's weak performance over the summer. Risk is that this week's PSNCR data and the minutes of the Oct MPC could also be bearish for sterling although surveys have suggested that retail sales data may be more positive.
Earnings data will be in full view this afternoon, the economic calendar offering only US NAHB housing data.
