Article by AlgosysFx Forex Trading Solutions
The US dollar is presumed to benefit from risk averse trades to begin the trading week on views that the European leaders’ crisis-fighting measures are encountering another roadblock. Meanwhile, concerns over a slowing Chinese are once again deemed to underscore the dire state of the global economy, deterring demand for the commodity-linked Australian dollar.
German Chancellor Angela Merkel and French President Francois Hollande remained at odds over plans to monitor Europe’s crisis-hit banks, overshadowing an occasion marking Franco-German reconciliation after World War II. Despite affirmation that European unity was the only way out of the debt crisis, they differed over tighter checks on Europe’s banking sector. Hollande is all for banking union, saying that such a framework should be in place preferably before the year ends. For her part, Merkel urged a more cautious approach to ensure success while at the same time refusing to set a target date. Back in June, EU leaders concurred over new bank supervision as part of an agreement to allow the region’s rescue funds to lend directly to struggling banks instead of passing it through countries. Nonetheless, the deadlock outlined once again Germany’s doubts about placing the European Central Bank in charge of bank supervision beginning January 1. Another point of contention is the terms on which struggling countries should request bailout assistance, with German Finance Minister Wolfgang Schaeuble warning against a Spanish application for aid. With European leaders seemingly failing to deliver on their pledge to resolve the crisis, the markets are foreseen to pare risk appetites today.
Meanwhile, a key survey of Chinese manufacturers and retailers reveal that optimism over sales levels are waning and that more are cutting jobs. China’s Beige Book found that 43 percent of manufacturing firms reported higher revenues this quarter, down 20 percent from the previous release. Those expecting higher sales in the next six months dipped 18 points to 53 percent while companies expecting lower sales doubled to 20 percent. Retailing growth is also feeling the pinch as 20 percent reported a drop in sales, almost double the prior figure. The economic slowdown is prompting more companies to reduce jobs and halt hiring. Those cutting employees rose from 13 percent to 20 percent this quarter. The results suggest that the world’s second largest economy slowed for the seventh consecutive quarter to its weakest annual expansion in 22 years this quarter. According to economists, the survey also failed to provide an encouraging sign that a recovery is in the offing. China is Australia’s largest trading partner, and a continued slowdown there is seen to further dampen the outlook for the Land Down Under. Considering these, a short position is deemed viable for the AUD/USD.
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