It was an interesting night’s price action on the single currency, with EUR/USD pushing to 1.3829, seemingly overlooking weaker-than-expected PMI data in Italy and Germany.
It wasn’t until about two hours later that the pair pulled back to around 1.3714 before buyers came in. This occurred after Dr Bernanke’s comments, stating that he was ready to do more (i.e. further asset purchases if needed). To be fair, the FOMC meeting has re-emphasised the ‘Bernanke put’, but did we learn anything new? Probably not. The eyes of the currency world are now transfixed on the G20 summit, and comments are coming out in dribs and drabs from different European officials. According to comments from eurogroup member Mr Juncker, the Greek referendum will take place on December 4, which is probably sooner than some had expected and that is positive because the next tranche of aid will not be provided until we know if the Greek public are going to pass the referendum.
Mr Sarkozy went onto say that ‘it was up to the Greek people if they wanted to remain in the euro’. The whole thing has become a mess, and will certainly keep risk assets shackled in the short term on the premise that there is a real possibility that Greece may vote against the revised bailout and austerity, and subsequently find itself having to fund its massive deficit in drachmas. Tonight also sees the ECB rate decision, with newly appointed ECB president Mario Draghi speaking to the world about how he views things. As it stands, the credit markets are pricing in a 32% chance of a cut, with only five of 55 economists surveyed by Bloomberg suggesting the ECB will move. We feel that there are real risks it may cut, which should in theory cause significant downside in EUR/USD. However, keep an eye on whether the ECB will continue buying Italian debt in the secondary market because the market would like that.