A Busy Day Ahead for the EUR/USD

This morning the EUR/USD extended its gains and is changing hands north of the 1.31 mark. The gradually, but steady rise continues. Asian equity markets are mostly in positive territory. China is a clear outperformer after Chinese official sources pledged a policy to promote economic stability and to support domestic demand. At this time of the year, the cross markets links are often less than is usually the case. Nevertheless, the positive sentiment in Asia will probably still filter through into the European markets this morning. The headlines on the negations on the US fiscal cliff are not that positive, but markets apparently still assume that this issue will be solved ‘in the end’. Traders will be careful ahead of the central bank meetings tomorrow with the US FOMC at the beginning of next week. Gold has also tumbled to a recent low trading below 1700 yesterday but recovering a bit this morning as traders were bargain hunting.

News that the EU Ministers were making positive strides for a Banking Supervisor helped the euro trade.

As we enter the beginning of a new month, the calendar is filled. In the EU the final PMI surveys from the services sector will be published. The EMU October retail sales will be weak. After the recent rally on peripheral bonds, demand for today’s Spanish auction might be less buoyant. N The calendar in the US is interesting too with the ADP labor market report, the factory orders and the ISM of the nonmanufacturing sector. After the poor ISM of the manufacturing sector, another disappointment might raise questions on the strength of the US economy.

Looking ahead to next week’s Fed meeting, the impression is that dollar has become more sensitive to negative news than is usually the case. The rise in employment according to the ADP methodology is expected higher than is the case of the payrolls, but several statistical issues (uncertainty on the impact of storm Sandy and the changed methodology) are in play. So, there is probably a wide deviation from consensus needed to inspire a big reaction.

Although traders believe that US Lawmakers will reach a last minute deal to avoid fiscal disaster, the grandstanding and rhetoric are weighing on the US dollar. This time we are watching US policymakers take to the press much as we have watched the EU Finance Ministers over the past months as they dealt with Greece and the debt crisis, all pushing their own political agendas.

The dollar remains under pressure overall. Investors apparently are still a bit cautious to buy the dollar going in the next week’s Fed meeting as the Fed is expected to replace the operation twist by outright bond buying. US equities ended slightly in the red, but this change the overall picture for EUR/USD trading. EUR/USD is up today in late Asian trading at 1.3118