Euro / Dollar Spreads Drop on Eurozone Sovereign Debt Concerns
Spread Betting 2 May 2012
With many European markets closed for business yesterday, French and German shares are set for a boost in today's session.
Strong manufacturing data from the US, the world's biggest economy, has given investors hope that the economic recovery is gathering momentum.
The figure itself showed that US manufacturing grew in April at the strongest rate in 10 months. This resulted in the Wall Street index closing at its highest level in more than 4 years.
Nevertheless, investors are likely to remain cautious after this morning's report showed that China's manufacturing sector shrank during April; the sixth consecutive month of declines.
Tuesday's session saw strong gains on the back of the better than expected US data, which pulled global banks and commodity stocks higher.
As a result, spread trading investors will be looking to see if the FTSE can keep up the bull run after the index broke through the near term resistance around 5790/5800.
So far this morning the London market is in negative territory, just above the 5800 level, after trading higher at the open. The test for the bulls will be whether they can turn the breached resistance area into support.
Today sees the release of April UK Construction PMI data and the Bank of England March Consumer Credit and Mortgage Lending data, with both coming up at 09:30 BST.
Considering the weaker than expected UK manufacturing number yesterday, it would not be a surprise if this morning's figures also look weak. Particularly since construction was one of the main factors behind the negative GDP figure last week.
Across the pond, April's private payroll ADP figure is due out at 13:15 and will give market participants an idea of how Friday's Non Farm Payrolls might look.
To top things off, March US factory orders and revised durable goods orders are scheduled for 15:00 London time.
The single currency was on the offensive against the dollar before the US manufacturing data was released yesterday. However, it quickly reversed course to end marginally lower at $1.3235.
Europe remains engulfed in sovereign debt troubles so the forex markets took notice of the potential downside over the short term.
Developments in the Eurozone economies will probably be of crucial importance in the next few weeks.
Friday's US Non Farm Payrolls number will also be on top of everyone's radar, but before then there's the ADP figure.
This morning the euro is trading at $1.3185 against the US currency.
Gold finished slightly lower yesterday, losing $1.65 to close at $1,662.80. This largely came on the back of the positive US manufacturing data, which sent investors back into risky assets.
Doubts that the Fed will employ another round of quantitative easing have also reduced demand for gold as a hedge against weaker US monetary policy.
Considering the bigger picture, the $1,620 - $1,680 range established last month is still in place. At the time of writing the precious metal is at $1,651.
The economic recovery in the US has continued to remain fairly resilient, as indicated by yesterday's positive manufacturing data, despite speculation of slowing activity.
Energy investors were quick to react, pushing US crude oil futures above the $106.00 resistance level and scoring a $1.27 gain for the day, closing at $106.16.
The upcoming reversal of the Seaway pipeline may have also played a supporting role as it could clear the glut in the US crude oil market. This morning US crude is just a little softer at $105.75.
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'Euro / Dollar Spreads Drop on Eurozone Sovereign Debt Concerns' edited by SD, updated 02-May-12
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