Forexpros – The euro was down against the dollar Tuesday as Asian markets assessed the currency’s sharp declines in earlier U.S. and European trading sessions.
Markets on Tuesday felt eurozone commitments to better integrate fiscal policies lacked the urgency and teeth needed to end the crisis in the near term.
EUR/USD hit 1.3179 during early Asian trading, down 0.07% and slightly up from a session low of 1.3161 and off from a high of 1.3190.
The pair was likely to find support at 1.3161, today’s low, and resistance at 1.3434, Friday’s high after a volatile day in the U.S. and Europe.
In Europe on Friday, almost all members of the 27-member European Union agreed to stricter fiscal coordination and integration, including tough punishments to those who run deficits beyond limits.
Member nations also agreed to earmark EUR200 billion to the International Monetary Fund to rush to the aid of ailing economies, should the need arise, but markets were worried more about immediate credit and solvency issues battling the continent’s economy than the longer-term steps taken at last week’s summit.
Ratings agencies were quick to point out the exact same sentiments.
“The communiqu? issued by European policymakers after the recent euro area summit offers few new measures and therefore does not change our analysis of the rising threat to the cohesion of the euro area and the further shocks to which it and the wider E.U. remain prone,” Moody’s Investors Service said in a statement.
“As we announced in November, unless credit market conditions stabilize in the near future, our ratings of all EU sovereigns will need to be revisited. The communiqu? does not change that view, and we continue to expect to complete such a repositioning during the first quarter of 2012.”
Calls for the European Central Bank to step in and act as a lender of last resort have met with little fruition.
While the European monetary policy authorities have expressed willingness to assist struggling financial institutions, they have remained firm that politicians must address their own economic problems.
The European Central Bank has insisted its job is to control prices and keep them comfortably in line with inflation expectations and not jump in the market and buy sovereign debt issued by struggling nations.
European Central Bank President Mario Draghi has dropped hints the central bank may resort to less orthodox policies to help the economy but has stressed the task is largely one for politicians, and not central bankers.
A new fiscal compact is “definitely the most important element to start restoring credibility,” Draghi told the European Parliament in Brussels just prior to last week’s summit, according to Bloomberg.
“Other elements might follow, but the sequencing matters. It is first and foremost important to get a commonly shared fiscal compact right.”
Draghi didn’t specify what those other elements might entail but has said that central bank’s bond purchases “can only be limited.”
In the U.S., the federal budget deficit came in at $137.3 billion in November, slightly narrower than the forecast $138.5 billion spending shortfall.
The euro, meanwhile, was also down slightly against the pound, with EUR/GBP dipping 0.08% to trade at 0.8455.
Currency markets are shifting their focus to the U.S. now as Federal Reserve policy makers convene to address interest rates later Tuesday.
Consensus says the Fed will leave the benchmark lending rate at 0.25%
The U.K. and France will publish their latest consumer inflation figures while the U.S. will report on retail sales data, a key component to consumer spending.
In Germany, the Zentrum f?r Europ?ische Wirtschaftsforschung (ZEW) Economic Sentiment Index will publish on Tuesday.
The index, which gauges the economic sentiment in Europe’s economic engine, should come in at -55.8 compared to a previous -55.2 reading.
The reading is the product of a survey of German institutional investors and analysts, and a reading below zero reflects pessimism, but any surprises for the worse could spell trouble for the euro.
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