EURUSD Nears 1.2900 On Weak German IFO

The USD is stronger against all majors in the ongoing session. European equity indices are losing around 1% and the relative strength winners are USD and JPY while NZD lags. 4 clips of Ashraf's CNBC appearance are found here: http://ashraflaidi.com/t/?h3567

Sunday's Der Spiegel magazine reported that the EZ is preparing to increase the ESM firepower from EUR 500M to EUR 2 bln. By using the same leverage that was used in the EFSF, the size would increase without the need of the EZ countries to contribute more capital. German finance minister said today that he supports the idea but added that the size is unlikely to reach EUR 2 bln. Traders will also continue to watch Spain as some reports suggest it could formally request aid this week.

The pressure on the common currency increased after German data came in below expectations. The Ifo business climate continued to fall in September which was the fifth back to back monthly decline. The main index dropped to 101.4 from 102.3 while the current assessment fell to 110.3 from 111.1. The expectations sub index declined to 93.2 from 94.2. EURUSD trades near session lows around 1.2900.

The BOJ minutes from the 08/09 meeting revealed that one member said that the BOJ may need to boost inflation expectations by influencing FX rates. Other comments were hardly surprising citing that prolonged slowdown in overseas economies could delay Japan's recovery. USDJPY briefly fell under 78.00 but reversed and now trades round 78.05.

There are no reports due during the US session. However, markets could react at 3:00 pm when the BOC governor Mark Carney participates in a panel discussion in Ottawa and also at 3:30 pm when the San Francisco FED president John Williams delivers his speech on economic outlook.