Talking Points

• US Dollar to Pull Back Further as Italy, Greece Move Closer to New Governments
• Risky Assets Rebound Unlikely to Prove Lasting as Familiar Fears Continue to Linger
• Canadian Dollar Sold, Oil Pipeline Delay and Upcoming Fed-Speak Likely Culprits

TheUS Dollar edged lower in overnight trade, with more of the same hinted ahead asS&P 500 index futures rise to signal a recovery in risk appetite that stands to weigh on the safe-haven benchmark currency. Optimism is on the rebound afterGreece finally settled on Lucas Papademos – at one point the Vice President of the ECB – as its new Prime Minister, whileItaly seemed to abandon the idea of disruptive early elections in favor of a technocrat-geared transition government headed by former EU Commissioner Mario Motti. The news-flow underpinned hopes that the emergence of coherent stewardship in both countries will see the passage of austerity measures that offer relief to the debt crisis.

On balance, this nascent optimism seems unlikely to prove lasting. While the passage of deficit-cutting measures is certainly a step in the right direction, their actual implementation is what investors would truly like to see. Indeed, at this stage, Greece is a go-to case study of a country that promised a lot but yielded little, failing repeatedly to meet the budget benchmarks set by its saviors at the EU and the IMF. With that as their base-line scenario, it is unlikely that traders would expect any more of Italy, at least until they are proven unequivocally wrong (which will take some time and seems unlikely). This suggests the respite from risk aversion will probably prove brief, withsentiment-sensitive currencies coming under pressure anew in the near term.

TheCanadian Dollar underperformed, sliding against all of its major counterparts, as if in anticipation of the upcoming commentary from typically dovishFederal Reserve policymakersJanet Yellen andJohn Williams. If both opt to decry slowing US economic conditions and weigh on the outlook for the world’s top economy and Canada’s largest export market, this will naturally carries negative implications for the BOC rates outlook and thereby the Loonie. News that US State Department has opted to delay the development of a pipeline for Canadian oil into the US until after the 2012 election, suggesting Canadian suppliers will miss out on a jump in export revenue (at least for now) and compounding pressure on tightening expectations.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

---Written byIlya Spivak, Currency Strategist forDailyfx.com

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