Forex Europe Review – Euro recovers on possible IMF help to banks

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EURUSD was initially lower based on weak euro zone data. Both EZ services PMI and retail sales data were lower than expected, highlighting the region’s debt crisis is hampering economic recovery. Euro got a boost to 1.3373 on hopes the European authorities are working on a plan to boost the capital of the banking sector and the head of the IMF’s European department, Antonio Borges said the IMF could invest in secondary markets in Spanish and Italian bonds alongside the EFSF. By session-end, euro pared all gain as the dollar was boosted by a positive jobs report from ADP which showed more jobs were created in the US than forecast.

 

GBPUSD surged over 40 pips to 1.5476 immediately after the release of much better than expected UK service sector PMI. However, this knee-jerk reaction was short-lived as additional data on GDP came out unexpectedly lower at 0.1 percent which was half the forecast growth rate. Cable will likely remain on the downside until tomorrow’s Bank of England policy meeting. There is growing speculation that the bank will enlarge its quantitative easing.

 

EURCHF hit a session high of 1.2297, the highest in two weeks as the Swiss franc weakened against the euro due to speculation that the Swiss National Bank might set a new exchange rate cap against the euro. There is talk of moving the peg to 1.30 CHF from the current 1.20 CHF which was set on September 6 in an effort to curb franc strength which has been hurting Swiss exports.

 

USDJPY remained range bound most of the European session and firmly supported above the 76.60 level but broke out of the range and surged to 76.80 after better than expected US jobs data boosted the US dollar. EURJPY remained supported above 101.80 after recovering from a sharp fall in Asia after Moody’s downgraded Italian bonds. Euro recovered on slightly better sentiment especially after the head of the IMF’s European department Antonio Borges said the could buy Spanish or Italian bonds alongside the euro zone bailout fund if needed, to help boost investor confidence in those countries.

 

USDCAD consolidated most of the European session, opening at 1.0538 and hitting a high of 1.0502 then falling to a session low of 1.0497 as the Canadian dollar strengthened after better-than-expected U.S. private-sector jobs data boosted risk appetite. The ADP jobs report showed that U.S. private-sector employers added 91,000 jobs in September, above economists’ expectations of 75,000. Positive data from the US also boosts the Canadian currency because the US is Canada’s major trading partner.