Risk On Sentiment Continues But Euro Is Weaker

Ezone current account deficit grows wider, trade balance unchanged. Merkel sees German growth near 3%. UK officials talk QE again. Market will continue to focus on EconFin meeting in Poland and later to Canadian foreign securities purchases, US TIC data and UoM Consumer Sentiment survey.

EcoFin meeting in Poland is in focus as markets will be waiting for reassuring message that the measures from 21st of July EU summit will pass national governments and that coordinated actions will be implemented should it be required. Market sentiment is likely to worsen again when the next set of disappointing data comes out as liquidity operations announced yesterday show just how serious the condition of the western economies really is.

On the data front, Eurozone Current account deficit has widened in July to EUR -12.9 bln from EUR -7.1 bln and Trade balance remained unchanged at EUR -2.5 bln.

EURUSD gives up a substantial chunk of yesterdays gains despite reassurance from chancellor Merkel that the German economy will grow near 3% in 2011 and that Eurozone will do what is necessary to defend the Euro. Merkel has yet again expressed her anti Eurozone bond stance when she said that there will not be any Eurobonds. EURUSD slid from yesterdays high of 3937 to 3777 and currently trades slightly above the 1.38 mark.

QE talk in the UK seems to be becoming the norm these days. UK business secretary Vince Cable said that QE is an initiative that can restore business and consumer demand and BOE Charles Bean said that more QE would be effective as recent economic indicators were disappointing. Despite these comments GBPUSD trades higher above 1.58 and EURGBP is lower below 0.8750.

The US session starts at 8:30 am ET with Canadian Foreign Securities purchases that are expected to reach CAD 2 bln in July from a CAD -3.4 bln in June.

US net long term TIC flows due at 9:00 am ET are seen significantly higher at USD 31.3 bln in July from dismal USD 3.7 bln in June.

9:55 am ET will bring University of Michigan Consumer Sentiment index that is estimated to increase to 57.3 in September from 55.7. Despite this anticipated increase, consumers confidence has deteriorated considerably over the past three months and reached levels last seen at the beginning of 2009.