Euro Breaks Below 1.36 as German Rescue Plan Fails, Investor Confidence Disappoints

The Euro came under heavy selling pressures during the overnight Asia session to break below 1.36 as the Hypo Real Estate bailout plan failed over the weekend. Indeed, selling pressures for the Euro increased as the Sentix Investor Confidence index failed to meet expectations, and pushed the currency to touch an intraday low of 1.3543.against the U.S. dollar.

Talking Points
• Japanese Yen: Breaks Below 103.50
• Pound: Chancellor Darling Backs BoE’s Neutral Policy, GBPUSD Holds 1.75
• Euro: Sentix Invest Confidence Disappoints, ECB to Lower Rates
• US Dollar: Fed’s Evan and Fisher Scheduled To Speak

Euro Breaks Below 1.36 as German Rescue Plan Fails, Investor Confidence Disappoints

The Euro came under heavy selling pressures during the overnight Asia session to break below 1.36 as the Hypo Real Estate bailout plan failed over the weekend. Indeed, selling pressures for the Euro increased as the Sentix Investor Confidence index failed to meet expectations, and pushed the currency to touch an intraday low of 1.3543.against the U.S. dollar.

Over the weekend, we saw the rescue package for Hypo Real Estate fall short as new liquidity gaps emerged, which led the government to issue guarantees for all bank deposits throughout Germany. Mounting turmoil throughout Europe has becoming a growing concern as ECB Governing Council member Ewald Nowotny noted increased downside risks for growth, and went on to say that ‘economic growth is slowing down significantly.’ The comments suggest that the ECB may look to lower the benchmark interest rate at their next meeting, which would only fuel bearish sentiment for the euro in the near-term. Meanwhile, investor confidence in the Euro-Zone fell more than expected as the index slipped to -27.8 from -20.2 in September amid expectations of a -27.3 reading projected by economists. A deeper look at the report showed that investor expectations plunged to -41.0 from -28.0 in the prior month, indicating that market participants expects conditions to only get worse as the effects of the U.S. financial crisis spills into the global economy.

Amid expectations of a rate cut by the ECB, U.K. Chancellor Alistair Darling announced that the government backs the BoE’s neutral policy stance, and went on to say that the government will take the necessary steps to counter the sharp decline in Europe’s second largest economy. The comments suggests that the BoE may have more room to hold the benchmark interest rate steady at 5.00% for the remainder of the year, with the government scheduled to release a new outline on Wednesday to how they will respond to the financial crisis.

The U.S. economic calendar remains bare for the next 24 hours, and the lack of fresh economic data could leave the U.S. dollar at the mercy of macro drivers. The ratification of the $700B rescue package has certainly helped to increase the growth outlook for the world’s largest economy as other major economies around the world are facing the spillover effects of the financial crisis. Rising turmoil in the rest of the world has certainly helped to increase the appeal of the reserve currency, and mounting growth concerns for the global economy may continue to fuel bullish sentiment for the greenback in the near-term.

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