Will the Euro euphoria hold?

Following Malta’s backing to the changes in Eurozone’s bailout fund yesterday, markets are keeping an eye on Slovakia’s final vote on enlarged European Financial Stability Fund later in the day. Reports suggest that Slovakia’s ruling coalition was unable to end a dispute over participation in the euro-area bailout fund. Any delay on approving the legislation could affect the outlook for Euro. Meanwhile, ECB President, Trichet’s comments that the euro region’s debt crisis now threatens the region’s financial system may dampen sentiment towards high yield currencies. Markets would also focus on the joint statement from the Troika later today, which might be vital in deciding the immediate future for Greece. We expect the Euro to be volatile against Sterling and the US Dollar in trading today, as market participants await further direction in terms of progress in tackling the region’s debt crisis.

Pound Sterling – UK Markets

Sterling is weak against the US Dollar, this morning, after data indicated stagnation in the UK housing market and a marginal increase in the UK retail sales in September. The British Retail Consortium indicated that the “underlying conditions remain weak”. Market expectation that a report scheduled for release today would indicate a decline in British industrial production is also weighing on Sterling. We expect the Pound to decline against the US Dollar today, as slew of downbeat economic reports point towards weakening economic prospects for the country. Yesterday, Bank of England’s policy maker, David Miles, indicated that UK economic growth might be “broadly flat” in the fourth quarter, and added that the central bank’s expansion of stimulus would aid the country’s economic recovery.

US Dollar – US Markets

The US Dollar has gained against the high yield currencies this morning, as traders’ exercised caution ahead of the vote in the Slovakian Parliament later today. Sixteen of the Seventeen nations in the European Union have ratified the increase in the Eurozone bailout fund, with Malta’s Parliament approving the expansion to the European Financial Stability Facility yesterday. Moreover, uncertainty over the Greek bailout and a weak start to the European markets has prompted traders to exit high yielding currencies and move to safe haven assets. Markets are also keeping an eye on Federal Reserve minutes of its September meeting, slated to be released later today.

Euro – European Markets

The Slovakian Parliament vote to boost the European Financial Stability Facility, scheduled later today, is expected to be one of the crucial factors in deciding the direction of the Euro in the near term. Bolstering the prospects for the Euro, Belgian Prime Minister, Yves Leterme, stated that 16 governments in the European Union (EU) would take over the burden to defend the Euro in case Slovakia fails to ratify the agreement. However, we expect Trichet’s statement to have a moderating impact on Euro’s run over the past few sessions. Meanwhile, European Union, International Monetary Fund and European Central Bank officials are expected to complete their review of the Greek economy today. With no major economic releases slated today, we expect the Euro to be volatile against the major currencies, as traders closely monitor events in Slovakia and Greece.

Other Currencies – Highlights

The Kiwi has weakened against the US Dollar, this morning, after the country’s budget deficit, for the year ending 30 June 2011, rose higher than forecast. Putting further pressure on the currency was the comment from the Finance Minister, Bill English, who stated that, “there is plenty of belt tightening to come over the next three or four years”. He further added that job numbers would continue to decline “because the budgets are going to get tight”. We expect the Kiwi to decline against the US Dollar today, as we anticipate investors to move towards safe haven currencies.