Talking Points

• US Dollar Sold as Asian Bourses Advance, Unwinding Yesterday’s Selloff
• Sarkozy, Geithner Meeting in Focus as Jittery Markets Cling to Headlines
• ECB to Offer First Batch of 3-Month Dollar Loans After Swap Rate Cut
• German, UK Industrial Production Data to Underscore Regional Slowdown

TheUS Dollar (ticker:USDollar) sold off in overnight trade, down as much as 0.3 percent against its leading counterparts, as stocks rose in Asian trade and sapped demand for the safe-haven currencies. The MSCI Asia Pacific regional benchmark equity index added 1.4 percent. The improvement in risk appetite likely follows a reassessment ofyesterday’s selloff in the wake news thatStandard & Poor’s put 15 Eurozone countries including the six AAA sovereigns on negative credit watch, with the move to downgrade presumably linked to the outcome of this week’sEU leaders’ summit.

Weargued earlier that the announcement’s initially negative impact on sentiment was likely to fadebecause the markets were already convinced of the existential importance ofthis week’s sit-down tostability in the Eurozone without the added threat of a massreduction in sovereign credit ratings. With that in mind, the S&P announcement was not a game-changer relative to what was already priced into asset values and so a retracement of the subsequent move lower across risky assets appeared reasonable. Sizing up current price action, that is precisely what seemed to be driving Asian bourses higher today.

Looking ahead, the singular focus on theEurozone debt crisis is likely to put the spotlight on a meeting betweenFrench President Nicolas Sarkozy and US Treasury Secretary Tim Geithner. Any comments, either by way of an official press conference or from the sidelines of the meeting, fleshing out the weak points in theFranco-German plan for greater fiscal integration within the currency bloc will be in focus. Traders’ primary concern is whether the arrangement goes far enough in creating a coherent fiscal backdrop to theEuropean Central Bank to step up bond-buying efforts and bear down on region-wide borrowing costs. Separately, the ECB will offer itsfirst allotment of 3-month US Dollar loans after last week’s coordinated 50bps reduction in swap rates by major central banks, with demand from financial institutions treated as a gauge of funding stress within the Eurozone.

On the data front, EuropeanIndustrial Production figures are on tap. German output is expected to add a meager 3.7 percent in the year through October, marking the weakest reading in nearly two years. Meanwhile, UK production is expected to shrink for the fourth consecutive month over the same period, matching September’s 0.7 percent drawdown. The results promise to remind investors that even if outright Eurozone meltdown is avoided, theEuro andBritish Pound remain vulnerable as sluggish growth beckons dovish monetary policy across the region.

Related:Better-Than-Expected GDP Figures Boost Australian Dollar

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

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

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