The recent string of poor economic data from around the world has many traders hoping that fresh monetary stimulus is coming both in Europe and the US.
On the macro view yesterday, the S&P/Case-Shiller home price indices showed that average home prices in the US increased 2.2% in May over the previous month for both the 10- and 20-city composites. Still, home prices were still 1% lower for the 10-city composite and down 0.7% for the 20-city composite on May 2011. Despite this better than expected numbers, the markets ended at the low of the session as the markets turned cautious to the upcoming Fed announcement, amid speculation over whether the U.S. central bank will indicate if further quantitative easing measures are imminent.
The fed enouncement is not the main focus for the week. Investors remained amid concerns the European Central Bank may disappoint market expectations for bold steps to counter the euro zone debt crisis at its policy meeting on Thursday.
Expectations have been mounting that the ECB will announce measures to lower Spanish and Italian borrowing costs after central bank chief Mario Draghi pledged last week to do whatever is necessary to preserve the euro.
Later in the day, the U.S. ADP numbers (preliminary non-farm employment change), while the ISM manufacture index is also due further in the day.
EUR/USD The single currency has jumped to 1.2330 soon after the Spanish manufacturing PMI has posted 42.3 in July, well above the previous reading of 41.1 and above all expectations but it gave most of it up soon after the important readings, Germany and the pan-European composite, have come in softer than expectations during July, at 43 and 44 respectively, down from 43.3 and 45.1 in the previous month.