Forex US Review – Euro steadies on Merkel comments to use EFSF to strengthen banks

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EURUSD bounced from a session low of 1.3276 to peak at 1.3382 on optimism of a potential solution to the debt crisis after German Chancellor Angela Merkel said the region’s largest economy is ready to help its own banks and further opened the possibility of using the European Financial Stability Facility to help strengthen the euro zone banking system. Meanwhile the focus will be on Thursday’s European Central Bank meeting. Expectations are for a rate cut by 25 basis points.

 

GBPUSD had been on the downside most of the session touching a low of 1.5390. Sterling fell against the dollar and euro after a report showed U.K. economic growth slowed during the second quarter. The U.K. economy expanded 0.1 percent from the first quarter, lower than forecast and less than the previous 0.2 percent growth. Cable bounced towards the end of the US session to 1.5480 on better risk sentiment after Germany offered a potential solution to the debt crisis. Also, a report showed U.S. service industries expanded last month, leading boosting demand for risk.

 

The Swiss franc dropped the most among the major currencies, falling to 92.48 centimes per dollar and weakening to 1.2354 per euro. EURCHF hit its highest level since May. The reason for the Swiss franc falling against the euro was rising speculation that the Swiss National Bank may change the current cap of 1.20 francs against the euro to move it to 1.30 francs in order to further weaken the Swiss currency.

 

The Canadian dollar strengthened against its US counterpart after risk sentiment picked up after better-than-expected U.S. private-sector jobs data boosted risk appetite. U.S. private-sector employers added 91,000 jobs in September, above economists’ expectations of 75,000. USDCAD fell from 1.0503 to 1.0395. The US is Canada’s major trading partner. Meanwhile, crude oil prices rose to US$79.80 from a session low of $76.92, which helped lift the commodity-linked Canadian currency since Canada is a major oil producer.

 

USDJPY opened the US session at 76.64 and rose to a high of 77.06 after the dollar strengthened against the yen following a report that showed private employment expanded last month. USDJPY fell back down to 76.69 on profit taking.