The euros divergence from rising US and European equities is growing similar to the divergence prevailing in Jan-April (see 1st red circle) when EURUSD fell 15% and S&P500, Dow-30 and FTSE-100 rose 16%-19%. If the Jan-April pattern repeats itself, then it is feasible to expect equities to catch down with the euro. The fundamental rationale would be based on i) broadening Eurozone concerns weighing on UK and Eurozone banks; ii) prolonged rise in US yields and iii) growing doubts upon the completion of the $600 bln QE2. We stick with our technically negative euro stance based on: i) the inability to regain the all important 55-week MA (1.3370); ii) the inability to regain the Nov 4 trendline. EURUSD eyes short term target fo $1.3070, followed by $1.26 in mid Q1 2011.
CHINA's INCREASE of RESERVE REQMT RATIO is no longer weighing on market sentiment as participants are expecting the more aggressive option of higher interest rates (borrowing and lending). I noted in last night's IMT that a hike in the RRR would be more market friendly than a hike in interest rates. CAD IS STRONGEST CURENCY OF THE DAY so far after Canada trade deficit dropped to C$-1.71 from C$-2.49 bln. EURCAD eyes 1.3280. $EURUSD pressured by improved USD following the $7bln decline in US trade deficit. $1.3160, followed by $1.31.
Dec 9:MORE BAD NEWS FOR EUROZONE; Hours after Fitch downgraded Ireland to BBB+, Irelands centre-left opposition Labour Party said will vote against the EUR 85 bln IMF/bailout package due for approval next week. I stick with my $1.27 forecast (60% chance to take place before year-end)
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