- Merkel and Sarkozy call for closer euro zone economic governance, headed by Van Rompuy. All 17 nations should introduce balanced budget amendments to constitutions by mid-2012. Calls for financial transaction tax.
- They did not propose common euro bonds, or increasing size of EFSF; Ireland asked to raise corp tax
- US industrial production much firmer than expected at +0.9% in July as auto manufacturing rebounds from Japanese quake disruptions; Capacity use at 2-year highs
- Fitch affirms US AAA rating; affirms Freddie and Fannie at AAA
- US 10-year note yield falls 8 bp to 2.22%
- S&P 500 falls 1% to 1193
EUR/USD tested the top of recent ranges in the 1.44701s in the immediate aftermath of the opening of the Merkel/Sarkozy press conference but it did not stay near those extremes for long. No move toward a joint euro bond nor an increase in the size of the EFSF bailout fund soon sent markets lower. The inclusion of a long-sought financial transaction tax also undercut the euro as traders feared the new tax will push business and liquidity away from the eruro zone and toward the US and UK. GBP was a modest beneficiary after the news, rising to the 1.6470s.
EUR/USD pulled back to 1.4375 before steadying and ultimately died out around 1.4400, in no-man’s land. Stop-loss sell orders are seen below the 1.4350 level near-term, below session lows and the 100-day moving average at 1.4354
USD/CHF and EUR/CHF were well supported throughout the US trading session amid hopes the SNB and Swiss government will unveil a plan to weaken the franc until the European debt crisis blows over, if it ever does. Failure to announce credible steps tomorrow will lead to a renewed surge in the franc, to be sure.The affirmation of the US’s AAA by Fitch was a boost as well for risk appetites overall, as was the US industrial production data, until the Sarkozy/Merkel presser laid an egg.
Gold performed well today as the safe-havens dwindle to a pressure few without the usually stalwart CHF, up $20 to $1785.
