In a relatively peaceful European session EUR/USD was refuelled through the US session. Although many traders believe the US dollar is weak due to the upcoming decision on the ESM by the German Constitutional Court or a possible QE3 by the Fed however, Moody's credit rating agency appears to be the main cause for the EUR/USD mayhem. In a statement Moody's warned that the US budget negotiations at the end of the year will determine the US credit rating. The pressure on the Fed members to launch QE3 is now higher, the market is reacting in accordance.
"If those negotiations lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term, the rating will likely be affirmed and the outlook returned to stable...If those negotiations fail to produce such policies, however, Moody's would expect to lower the rating, probably to Aa1." (Moody's).
The 'fiscal cliff' is currently assisting the selling of the US dollar but I wonder when that reverse risk-aversion will dominate the financial markets. Forex traders anticipate the Fed to initiate QE3 in a dovish statement. The market is pricing in the probability for QE3 but do not be surprised if strong profit-taking materialize shortly after the Fed's announcement. Please do not be surprised if QE3 will not be on the tables. A clear signal there is still a great concern for QE3 is gold (XAU/USD) failing to post strong gains with the leading indices and USD pairs and crosses in the Forex market.
German Court Verdict Due at 08:00am GMTThe German Constitutional Court will give its verdict in the morning (CEST) on the ESM and Fiscal Compact Treaty and may surprise the market by limiting Germany's liabilities. The court is expected to publish their verdict at 08:00am GMT.
EUR/USD Technical Trading Strategy
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