Forex Europe Review – Euro gains ahead of Merkel-Sarkozy meeting to tackle EZ debt issues and a joint eurobond

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Euro outperformed the dollar overall in the session, rising for a second day on speculation a meeting tomorrow between French President Nicolas Sarkozy and German Chancellor Angela Merkel in Paris may result in an agreement of a joint issuance of euro-zone bonds , easing fears of debt contagion in the area. EURUSD opened the session at 1.4301and fluctuated throughout the session before reaching a high of 1.4379. Euro accelerated gains towards the end of the session after the release of disappointing New York State Manufacturing Index, which declined in August despite expectations for it to rise.

 

Sterling has been rising against the dollar since Friday when risk sentiment picked up after better than expected US retail sales data. GBPUSD opened the European session at 1.6285 and after a brief dip to 1.6254 continued to rise to a high of 1.6362. The Pound also gained against the euro early in the session, as EURGBP fell to 0.8755 from a 0.8779 open, before rebounding to 0.8790 as euro gained strength ahead of the Franco-German summit tomorrow when a fiscal union will be discussed.

 

EURCHF continues to be unattractive to investors following a Swiss newspaper report that fuelled speculation of a peg to the euro as a measure to stem franc strength. The franc gained excessive strength as its safe haven status was in demand following the U.S. Fed decision to leave interest rates unchanged until mid 2013 as well as the U.S. downgrade by S&P. Lack of immediate macro economic data gave the SNB an opportunity to propose their idea of setting a target rate on the euro-Swiss pair. This put pressure on the franc which weakened significantly against the euro today, with EURCHF rising sharply in early European trading to 1.1456 before giving way to sellers taking profits, bringing the pair briefly back down to 1.1240.

 

The yen dropped versus the euro after Japanese Finance Minister Yoshihido Noda indicated he is ready to intervene in markets again. EURJPY opened at 110.04 and fluctuated throughout the session before rising sharply to 110.22 before closing the session. The euro-yen pair was lifted also due to euro strength based on speculation the a meeting between Merkel and Sarkozy tomorrow will tackle issues to deal with euro zone debt, including an idea on a fiscal union. Meanwhile, USDJPY fell by the end of the session after weak US data on New York State Manufacturing Index. The dollar fell to 76.63 against the yen from an open price of 76.90.