The USD strengthened across all of the G10 today with exception to the JPY (unchanged) as risk aversion firmly gripped the markets. Initially equities opened lower as they were disappointed by the lack of progress surrounding the European debt crisis at the EcoFin meeting over the weekend, however in the mid-afternoon market sentiment began to turn around after the conference call between Greece’s Finance Minister Venizelos and members of the EU, IMF and ECB (Troika) was described as being “productive and substantive”. Furthermore, their talks will continue as the teams of experts “will further elaborate on some data and the conference call will be repeated tomorrow at the same time” said the Finance Ministry. Accordingly, the Euro gained roughly 100 pips to close just below the 1.37 figure and the Dow, which was lower by more than 250pts at one point, rallied into the close to finished lower by only 0.94% on the day.
Besides tomorrow’s conference call with the Trokia, the market is likely to shift their attention to this week’s extended FOMC meeting, whereby many expect the Fed to announce “Operation Twist” – exchanging assets of short-dated maturities with those of longer durations (7-10 years most likely). This would be in response to the sputtering U.S. economy and an attempt to boost sentiment in the financial markets. Many believe this would not harm the USD as the size of the Fed’s balance sheet should remain the same.
Elsewhere, President Obama stole a few headlines after he announced a plan which calls for higher taxes on millionaires and billionaires by eliminating loopholes and that lowering the U.S. corporate tax rate could be addressed once these loopholes were removed. Over the next decade his proposed plan seeks to cut $3 trillion from the deficit. His plan has already been met with staunch opposition from the GOP.
Data for the upcoming Asia/Pacific session is very light with the RBA’s September meeting minutes and Japan’s July Leading & Coincident Indexes as well as their August Tokyo & Nationwide Department Store Sales.
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