Following the European agreement to leverage the remaining EUR 290 Bn in the EFSF up to EUR 1.0 Trn, increasing banks’ Tier 1 capital, a 50% haircut on Greek debt, and the removal of the ECB from the EFSF, financial markets have taken off with the “risk on” trade performing well. The EUR, AUD, and European equities are trading at their highest level this month.
Now that a deal in principal has been reached surrounding the European debt crisis with the details to be hashed out at a later date, markets will begin to turn their attention back to fundamentals and that means US GDP numbers which are due out later today. Expectations are between 2.4-2.5%. Two scenarios could play out:
1. GDP outperforms and the risk on trade continues to fire on all cylinders.
2. The Q3 data underwhelms the markets and the USD has reached its low for the day.
While previous data releases hint at a strong Q3 reading, short term technical indicators are beginning to show price divergence as seen on the EUR/USD daily chart’s stochastic. The rising trend line from the October low comes in at 1.3830 with resistance at the 200-day moving average at 1.4100. Cable’s 8 cent rally has failed to overtake its 100-day moving average for the 3rd day in a row and initial support for the GBP/USD is found at yesterday’s low of 1.5890. Cable may have resistance at its 200-day moving average at 1.6135.
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Russell Glaser is a Currency Analyst with ForexYard. Russell provides analysis in the FX spot market by employing fundamental research methodologies. In addition to currencies, Russell closely follows the correlation between the Commodities market and the movement of equities. His writings have been published on the ForexYard Trading Blog and associated partner sites. Prior to joining Forexyard, Russell Glaser served as a management consultant in the financial services industry, advising Fortune 100 companies. Russell holds a degree in finance from the Fisher College of Business at The Ohio State University.
