The risk assets finished strong last week as the market expects the European authorities will take further actions to save the European countries’ economies. The ECB President and leaders in Germany and Francehave declared that they will do as much as possible to defend the single currency. As the European Central Bank is going to hold its rate meeting thiscoming Thursday, it will beinteresting to see what policies the Bank will introduce in order to stem the crisis in the short-term, and most importantly, whether all Euro-zone members are going to agree to a solution. The best solution would be giving the EFSF/ ESM a banking license in order to maximize their functions to act as a lender for troubled countries. However, Germanyis expected to give a strong dissenting vote on this proposal. Other solutions includepurchasing sovereign bonds and reintroducingthe LTRO policy which may also be useful, but thoseeffects have provento be short-lived. Expectations have been set high by the speculators at the moment, but a disappointing result on the ECB’s decision on Thursday (which is quite likely) may spur another round of sell-offs. The market is currently finding support fromthe speeches from the ECB president and EU leaders, but these kinds of positive news do not change the fundamental picture at all. Investors should pay attention on the resistance provided by the 50-Day moving average, a failure to break above 1.2440 this week may open the door for further declines.
Last but not least, the FOMC will announce its policy on Wednesday evening. The U.S. Q2 GDP has slipped to 1.5% (annualized) and recent figures point to a slowdown inthe U.S. economicrecovery. However, the Fed is likely to refrain from announcing any further easing policy as quite a number of Fed officials were still reticent on expanding the asset purchases. The Fed is likely to gather more data before they pull the trigger and thus the employment data on Friday have become more crucial. The job market has been worsening in the past few months, and if the data in July has missed the market’s consensusexpectations again, it will elevate speculation on QE3 and pressure the Dollar lower.