The Obama effect on trading yesterday lasted only a few
hours before the problems in Europe returned to the forefront.

In the early morning, breaking news of Barack Obama’s second
term as president caused investors to recognise America’s path forward involved
further spending, which in turn resulted in greater risk appetite.

Although shortly afterwards, the release of negative euro
data quickly quelled this risk-on attitude as the euro tumbled against most of
its major peers and caused investors to rush back to the safety of the dollar.

The Obama effect on trading yesterday lasted only a few
hours before the problems in Europe returned to the forefront.

In the early morning, breaking news of Barack Obama’s second
term as president caused investors to recognise America’s path forward involved
further spending, which in turn resulted in greater risk appetite.

Although shortly afterwards, the release of negative euro
data quickly quelled this risk-on attitude as the euro tumbled against most of
its major peers and caused investors to rush back to the safety of the dollar.

The German economy is looking increasingly flat as
industrial production figures tumbled to a 1.8% contraction as evidence
suggests that the rest of the euro zone is dragging Europe’s flagship economy
down. The US also faces crucial decisions to be made over the looming fiscal
cliff, with analysts expecting that if the legislation was to become active,
the American economy could face recessionary pressure.

Despite key approval in the Greek government’s vote to pass
the latest round of austerity measures, the next tranche of bailout funds did
not serve to lighten the mood as the overall economic picture was sombre.

Today the key announcements will be made by the UK and euro
zone’s central banks, as both announce their own cash rates. Both are expected
to keep the rates unchanged, but may offer prescience into what may happen in
future meetings.

 

Today’s Key
Announcements:

• 07.00am – EUR – German Trade Balance: returned slightly
  lower at 17.0b
• 09.30am – GBP – UK Trade balance: expected to marginally
  improve to -9.1B
• 12.00pm – GBP – Asset Purchase Facility: expected to remain
  at the same level
• 12.00pm – GBP – Official Bank Rate: expected to remain at
  0.5%
• Tentative – GBP – MPC Rate Statement
• 12.45pm – EUR – Minimum Bid Rate: expected to remain 0.75%
• 13.30pm – EUR – ECB Press Conference
• 13.30pm – USD – Trade Balance: expected to slightly worse to
  -44.9B
• 13.30pm – USD – Unemployment Claims: slight increase
  expected at 367k