Forex Analysis: US Dollar May Rebound on EU Budget Impasse

The US Dollar may recover as lingering deadlock in EU budget negotiations fuels risk aversion and stokes demand for the go-to safe haven currency.

Talking Points

Euro May See Selling Pressure if PMI Data Boosts ECB Rate Cut Bets
EU Budget Deal May Prove Harder to Achieve Amid Euro Debt Crisis

November’sGerman IFO business confidence figures headlines the economic calendar in European hours. Economists’ forecasts point to further deterioration, with the headline Business Climate Index expected to hit the lowest level since January 2010 at 99.5. That would mark the seventh consecutive month of eroding sentiment. The coincident Current Assessment and forward-looking Expectations sub-indexes are seen falling further to 106.3 and 93.0 respectively.

The result may pass with little fanfare as forex traders continue to focus on the ongoing EU budget talks. Signs of deadlock have emerged as the regional bloc’s leaders butt heads over proposed spending cuts championed by the UK and opposed by France. In familiar form, Paris is again fighting to preserve its cherished Common Agricultural Policy (CAP)that heavily subsidizes French farmers.

While this is a familiar battle that has emerged time and again in EU budget negotiations only to end in compromise, the backdrop of the Eurozone debt crisis may make for a more heated outing this time. EU coffers are a major source of cash for those “PIIGS” countries already running bailout programs. Forex traders will keep a close eye on the proceedings, with signs of a lingering impasse heading into the weekend threatening to spark risk aversion and boost the safe-haven US Dollar.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

1:35

CNY

MNI Flash Business Sentiment Indicator (NOV)

53.57

–

51.86

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

IMPACT