Currency traders are not taking on bigger bets.
IG Markets Singapore said:
The Singapore dollar did very little overnight amid a mixed bag of economic news and data which left sentiment stuck in a rut.
On the one hand strong Chinese economic news and US jobs data had the potential to break the local currency out of its tight trading range.
But this was cancelled out by Japan dipping into recession, worries over a new Italian prime minister and the inevitable fiscal cliff concerns.
Bulls and bears battled it out with no-one having the upper hand.
This left global equity markets flat while currency traders refused to take on bigger bets. The Singapore dollar is currently trading at $1.2219 against the greenback.
An end-of-year drift looks likely.
DBS Group Research meanwhile noted:
EUR/USD dipped to an intra-day low of 1.2878 yesterday after Mario Monti announced his decision to resign as Prime Minister of Italy once the 2013 budget is approved. The Italian government bond yield curve was higher across-the-board by more than 30 bps.
Last week, the center-right People of Freedom party, which is the largest party in parliament led by former PM Silvio Berlusconi, withdrew its support from the government last week, but will support the budget if Monti resigns.
According to the timeline, budget 2013 is scheduled for approval by Christmas. The President will dissolve the government after Monti resigns, which means that elections will be held 70 days thereafter, effectively bringing forward the election to February from April.
Despite the political uncertainty, yesterday’s sell-off seems more like a knee-jerk reaction than an outright panic of another crisis breaking out. It is too early to confirm that Italy will stray from its current path of reforms.
According to the latest polls, Berlusconi is unlikely to get re-elected for a fifth term and that the next government is still likely to stick largely with Monti’s program.
Hence, it should not come as a surprise why the EUR/USD bounced back up to 1.2940 yesterday, and should continue to head higher if Italian government bond prices recover today as well.
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