Article by AlgosysFx Forex Trading Solutions
With market sentiment improving on hopes for fresh action to stem the protracted Euro Zone debt crisis and on progress on the economic front, the US dollar is deemed to lose ground opposite its Australian counterpart to begin the week. The markets await developments regarding the crisis as European officials hold a number of talks to try and sort out the debt turmoil. Luxembourg Prime Minister Jean-Claude Juncker, who also heads the group of Euro Zone finance ministers, is slated to visit Athens to discuss Greece’s fiscal adjustment program. Meanwhile, German Chancellor Angela Merkel and French President Francois Hollande meet in Berlin on Thursday to reconcile their differences and seek a way forward in tackling the crisis.
Ahead of the crucial meetings, investors already received optimism yesterday after the German news weekly Der Spiegel reported that the European Central Bank is considering buying the bonds of vulnerable Euro area nations to ensure that borrowing costs do not rise above a pre-determined level. According to the report, the central bank will likely define an upper limit for borrowing costs in Spain and Italy and intervene in the markets to make
sure that it is not breached. The ECB Governing Council would decide at its September policy meeting whether to implement the plan, which would serve to prevent borrowing costs from soaring to unsustainable levels. Amid such optimism, risk-on trades are presumed to weaken the Greenback.
Heading over to the US, mounting signs that the world’s largest economy is picking up is deemed to further incite optimism. Last Friday, two economic reports released provided a slightly encouraging picture of the US economy. The University of Michigan reported that American consumer confidence rebounded to a three-year high this month as retail sales
rose and low mortgage rates spurred consumers to boost their buying plans. The preliminary reading on consumer sentiment rose from 72.3 points to 73.6 points in August, exceeding expectations of a slight rise to 72.5. Economists say that the strong retail sales in July has
justified the view that economic growth will pick up in the second half of the year, and the report suggests that the primary driver of growth is likely to sustain its momentum. Meanwhile, a gauge of future economic activity rose in July due to a drop in Jobless Claims and an increase in housing permits. The Conference Board reported that its index of Leading Indicators rose by 0.4 percent last month, reversing the 0.4 percent drop recorded in June. With views that the US economy is likely to regain momentum in the coming months, improved sentiment is deemed to weaken the US dollar in favor of the Aussie. As such, a long position is advised today.
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