The EUR/USD Strong Ahead of Central Bank Meeting

The EUR/USD is trading in positive territory this morning, at 1.3039 adding 52pips. Market focus will be on the final November PMI’s in Europe and on the ISM of the manufacturing sector in the US. For the final EMU, PMI, there is a slight risk for a small improvement from the advance reading. There will also be quite some headlines on the Greek debt buyback tender. The outcome of this process is still subject to some uncertainty. The overall Greek bailout remains an issue, the terms and conditions are in question and the ability of Greece to meet the demands. Traders are not anticipating this to be a decisive factor for markets or EUR/USD trading.

The US ISM of the manufacturing sector is expected to stabilize in the mid 51.00 area. The figure might still be affected by the impact of storm Sandy. Even so, markets won’t be surprised from consensus there is no expectation for this report to have a ‘lasting’ impact on global market sentiment and thus on EUR/USD trading. The US fiscal cliff remains the wildcard for trading on global markets. The most recent headlines suggest that there won’t be a compromise anytime soon. At some point, overall uncertainty on this issue might retain investors to commit more money to risky assets. For now, we have the impression that the dollar is under moderate pressure do to this issue. However, EUR/USD usually also doesn’t like such a risk-off context, even if the source of uncertainty comes from the US.

Over the last few days, there were headlines that German Chancellor Merkel would not exclude a Greek haircut in the future. It is at least remarkable to see these headlines at the start of the German election campaign. Nevertheless, if European leaders would be prepared to consider more debt relief for debt-loaded countries, this would be an important (positive) step in the management of the debt crisis. This morning, there is quite some market talk on a marginally better than expected Chinese (manufacturing) PMI. This is a slightly positive for sentiment on risk. Even so, traders do not expect that this is good enough reason for the new uptick in EUR/USD this morning as the pair reached a new correction top at 1.3047. Again, there is no obvious trigger for this move, but it matches a context of broad based dollar weakness. This might have something to do with comments from US policymakers over the weekend signaling no progress in the talks on the fiscal cliff.

Today, EUR/GBP traders will look out for the EMU and the UK manufacturing PMI. For the UK manufacturing PMI, the market expects a cautious improvement from 47.5 to 48.00. As is the case for the EMU measure, there is a possibility for a better than expected report. Traders will be watching for the Bank of England and the ECB meetings later this week. Not much other action is expected until the meets are completed.