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EUR/USD update (2nd Aug 2012, 06:00)

In US trade, the euro held in a relatively tight range until the Fed Reserve’s lack of any new policy action saw the USD strengthen and the euro sink sharply. 

Those hoping for definitive policy action from the Fed were left disappointed - no QE, no IOER cut, no discount window scheme, and not even a change in the ’late 2014’ guidance. While the USD bulls had something to crow about, unfettered strength in the USD was tempered by the Fed's admission that ’economic activity decelerated somewhat over the first half of this year‘ and ’the Commission will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed‘.

The reference to ’additional accommodation as needed’ was a new introduction to the statement and seen by many as paving the way for further quantitative easing at the Fed’s next meeting in mid-September, by which time it will have had the benefit of two additional non-farm payroll reports to consider. The overnight slump in the euro could however be temporary, as tonight’s ECB meeting takes centres stage with a myriad of possible outcomes and market responses. With so many potential outcomes, traders today look set to take a conservative stance into the meeting, preferring to respond to rather than anticipate a particular move.

Having ended yesterday’s Australian session around the 1.2315 level, the euro slumped post the Fed decision to close US trade at 1.2225. Upon resuming for Asian trade the euro has pushed modestly higher to be in the mid-1.2230 range.


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EUR/USD update (2nd Aug 2012, 06:00)

In US trade, the euro held in a relatively tight range until the Fed Reserve’s lack of any new policy action saw the USD strengthen and the euro sink sharply. 

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