Signs of Action Boost Euro Ahead of FOMC

Scattered reports about a European plan to buy periphery bonds boosted the euro before it slipped back lower on vague denials. On the day, the euro was the top-performer while the USD lagged ahead of Wednesdays FOMC decision. The Asia-Pacific session features Japanese trade figures and secondary data from Australia. See which of the 5 trades in the Premium Intermarket Insights remain in progress.

The Guardian reported that Germany was set to allow the ESM/EFSF to buy the debt of Italy, Spain and other periphery countries. The euro rallied to 1.2725 on the report but skidded back to 1.2680 when German officials denied it. Italian leader Monti later issued a second denial.

The market remains optimistic, however, because world leaders at the G20 summit have expressed a new found optimism about the European situation likely because of assurances from Germany that some type of plan is coming together.

Other ideas likely being discussed are eurobills and a European Redemption Fund. The move toward more integration has likely been cleared the skeptics in Merkels party and some type of framework could be announced at the EU summit at the end of the month.

Economic data was light ahead of the FOMC decision but a dovish-toned article in the WSJ weighed on the dollar. May housing starts fell 4.8%, nearly wiping out a 5.4% rise in April. Greek politicians are likely to announce a coalition framework on Wednesday.

Early in Asia, New Zealands first quarter current account deficit was 4.8% of GDP compared to 4.6% expected, weighing on NZD.

At 2350 GMT, the Bank of Japan publishes the minutes of the May 23 decision, where no action was taken.

At the same time, Japan releases May trade data. Exports are expected up 9.3% y/y and imports are forecast to be higher by 2.9%. The total trade balance is expected to remain in a 561.1 billion yen deficit.

The conference board and Westpac leading indexes for Australia are due at midnight and 0030 GMT, respectively. At 0430 GMT is Japans all-industry activity index for April is expected to rise 0.1% after a 0.3% climb in March.

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-AB