EUR/USD Spreads Drop on German Eurozone Solution Comments
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The regular Financial Markets Update from Simon Denham of Financial Spreads.
For today's update >> Financial Markets.
Spread Betting 18 October 2011
The build up in confidence of the last few days has been quashed by comments from Germany’s finance minister that markets should not expect any definitive resolution to the sovereign debt crisis this Sunday.
That’s not what the bulls had been hoping to hear who’ve been buying equities in the build up to this weekend’s critical meeting after the noises from EU politicians had been that they were going to resolve the situation.
Having worked so hard to break above the major resistance level around 5400/35 after so many attempts, there was belief that this was a break out to the upside for the FTSE spread betting market.
However, it has turned out to be a very short lived break out and we’re now back below the 5400 looking like we could continue the weakness that’s set in so far this week.
The selling is also being compounded by poor GDP figures from China which dipped to their weakest level since early 2009. This bashed up Asian stocks and in particular the mining sector in Australia’s session so they are littering the biggest losers this morning.
Also, it’s Moody’s putting France’s prized triple A credit rating on negative watch that is getting the bears out in force today. The bond yield spread between France and Germany widened yesterday meaning that even Europe’s second biggest economy isn’t immune to a possible attack by bond investors.
All this is adding to the negative mood on the financial spread betting markets this morning and things might not get any better when UK inflation numbers are released later this morning.
The official CPI measure is expected to rise to 4.9% year on year, a whisker off 5% which many expect it to beat at some point, even the BoE has admitted this. Considering the upward pressure to prices from energy bills we could even see inflation hit that number today.
The recent announcement from the BoE that they’ll be printing more cash means that high inflation is likely to stay way beyond most people’s expectations. It will only take a prolonged period of flat or even negative growth to bring it back down.
Later on this morning we get the German ZEW survey which is closely watched as it has been weakening significantly in the past few months. It will be interesting to see whether economic expectations have improved a little ahead of Sunday’s big plan announcements.
Despite trading near a one month high, the EUR/USD forex pair dropped off drastically as traders were shaken by the news that German leaders think it is unrealistic to find a solution for eurozone debt problems by the October 23rd summit.
This wasn’t what they said a couple of weeks back was it? The euro is now trading at $1.3704 against the dollar and momentum is pointing strongly downwards. It has broken through a rising trend line, which could signal further weakness from here.
Gold’s safe haven status yesterday lost points to the dollar, which investors seemed to regard as the less risky bet as their optimism faded over the fate of the European banking system, causing equity and commodity markets to slump.
At the end of the session, the precious metal hadn’t quite been able to break below the 9 day moving average, but did lose $10 to rest at $1669.5. The bears are still in the stronger corner this morning though, as the gold spread betting market is trading further down at $1662.5 testing that support.
As the US dollar revelled in its safe haven status and equity markets weakened, crude oil was made to look more expensive and therefore was put under pressure.
All of this action was caused by the German leaders calling for a realistic approach to solving Europe’s debt troubles, which will take time and this is unfortunately something that is quickly running out.
So as risk takers were nowhere to be seen, it seemed the few market participants involved in black gold were the ones banking their profits. At time of writing, the liquid stuff hasn’t stopped sliding and is trading down at $109.21.
The above comments do not constitute investment advice and neither Financial Spreads nor Clean Financial accept any responsibility for any use that may be made of them.
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'EUR/USD Spreads Drop on German Eurozone Solution Comments' edited by SD, updated 18-Oct-11
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