EUR/USD Nov. 1 – Falls on Greek Referendum

EURUSD is free falling. The hangover from the EU Summit has intensified as the Greek Prime Minister announced a referendum to approve the recent EU deal. This gamble, alongside more signs of global slowdown, weigh heavily on the common currency, which already returned to the levels last seen before the previous summit.

Here’s a short update on fundamentals and what’s going on in the markets.

EUR/USD Fundamentals

14:00 US ISM Manufacturing PMI. Exp. 52.1 points. First hint towards the Non-Farm Payrolls. See how to trade this event with USD/JPY.
14:00 US Construction Spending. Exp. +0.4%.
14:00 US ISM Manufacturing Prices. Exp. 55.1 points.

* All times are GMT.


EUR/USD Sentiment

Greek Referendum: In a move that came as a shocker (although hinted in the past) Greece’s Prime Minister Papandeou announced that the recent EU Summit deal will be brought to the Greek public. This can delay implementation in the better scenario, and receive a NO in the more realistic scenario.
Partial Holiday: It’s “All Saints” Day in many European countries, hence no economic indicators and a slightly lower volume.
Global Slowdown: Chinese PMIs weren’t so convincing, and the sharp drop in British PMI. These join weak euro-zone figures published recently. The Australian rate cut, by itself a downwards sign, was accompanied with a weak sentiment.
EU Summit Doubts: After a very cheerful reception for the EU Summit results, the doubts begin to rise. This begins with no demand for a specific participation in the Greek haircut, continues with doubts about the willingness of China to really help, and the open question of CDS triggering.
Yen intervention fading: The Japanese authorities had enough after USD/JPY fell to 75.31 and made a sharp move in the pair, sending it as much as 400 pips higher before dropping a bit. This wild action sent EUR/USD down, and started the downfall. In the meantime, USD/JPY calmed down and EUR/USD continues on its own.
Italian bonds yields soaring: One of the stronger signs of disbelief comes from Italy. Berlusconi was forced to accept concessions, but they aren’t really huge. Until the leveraged EFSF comes into action, Italy suffers in its bond auctions and was forced to pay a dear price. The ECB, headed by Italian from Tuesday, still finds itself acting and buying bonds to lower their yields. This is a worrying sign. 10 year yields are currently 6.20% – as if the ECB never intervened…
US Situation Improving: The first read of GDP for the third quarter of 2011 came out at 2.5%. This was within expectations but much better than the previous quarters. While it triggered a strong risk rally, there’s still uncertainty about how the Federal Reserve will digest this. They might raise forecasts, but some expect them to act in the meeting this Wednesday.