The dollar rose on news that German businesses are less confident in their economy, though profit-taking sent the greenback down by Tuesday.
Spain’s economy minister said the country would not rush to seek external financial aid, though press reports have said the country is quietly drawing up blueprints to formally seek assistance.
On Thursday Madrid will unveil a draft budget for next year and announce structural reforms, while the results of the country's bank stress tests are due on Friday.
According to JPM, the downside risk in the EUR/USD may take the spot rate to levels as low as 1.25 in the coming months if one or more of the following four scenarios happens to occur in Q4:
(1) Europe ends Greece’s financing program out of frustration with new government.
(2) Italy election campaign generates concerns about structural reform and budget discipline once Monti’s government steps down.
(3) Spain refuses to apply for an EFSF credit line, prompting suspicion that it fears conditionality because its fiscal performance will be much worse than promised.
(4) Fed tones down its dovishness because Us inflation breakevens have surged.
other possible price catalysts: "
FOMC meetings on Oct 24 and Dec 12; Greek negotiations with troika; ECB meetings on Oct 4, Nov 8 and Dec 6; EU leaders’ summit October 18-19; Spanish regional elections on October 21; and Italian election campaign in late Q4."
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