Market Brief
Thin, holiday liquidity was once again the plague of the FX markets on Friday, allowing EURUSD to drift lower with very little support forthcoming. In spite of a lack of scheduled data releases during the afternoon session, Eurozone sentiment still took a beating with the combination of a poor Italian debt auction, coupled with the news of yet another ratings agency downgrade. This time, Belgium was in the focus as S&P revised down the sovereign's long-term rating by one notch to AA, outlook negative.
Over the weekend, there were reports from Italian newspaper La Stampa that the IMF is in talks with Italy about a possible loan program should the situation deteriorate further. This has subsequently been denied by IMF sources, however rumours and headline risk are likely to keep traders jumpy into the start of this week.
Adding some positive news to the otherwise gloomy backdrop in Europe, New Zealand's political situation looks to be in great shape. Prime Minister John Key was re-elected with his party's biggest majority in over 60 years, bolstering confidence that any tough budget balancing will be possible without too much difficulty. In turn, the NZD has been one of the outperformers on the session, with NZDUSD rallying from sub-0.7400 levels to highs above 0.7550
Coming up in this morning's session we expect to get the latest releases of Swedish retail sales, Eurozone M3, and German regional CPI figures – but expect FX markets to be predominantly driven by developments in the equity and bond markets. The main event in the afternoon will be US new home sales for October.
