Euro Rises on Forex Spread Trading Markets as IMF Discusses Italian Bailout
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The regular Financial Markets Update from Simon Denham of Financial Spreads.
For today's update >> Financial Markets.
Spread Betting 29 November 2011
Lots of hype surrounding the Chancellor’s Autumn statement today but in reality he cannot do much without going back on his plans to reduce the deficit.
Unfortunately for him the lack of growth in the past year and downgrades expected for the years ahead are going to mean that we’ll not see the coalition’s targets of deficit reduction met until after the next general election.
The fact that the bond markets have continued to give the Chancellor the benefit of the doubt and even reduced his borrowing costs is an encouraging sign that financial markets believe he is taking the right course.
Even though the cuts to government spending are in reality a drop in the ocean considering the size of the public sector, those who continue to oppose the coalition’s plans remain oblivious to the reality of the tricky situation we find ourselves in.
One of the options open to the Chancellor today is to wave his magic borrowing wand and go for what the opposition call a “plan B” ie borrow more in order to boost growth via government investment.
Now this sounds like a good idea at a time when the economy is struggling, however by borrowing more you are simply brushing the problem under the carpet as opposed to having a proper go at eradicating it.
The bonds markets would not be happy about the UK suddenly borrowing more and they would push our yields higher digging us into an even bigger whole.
Another option is to ramp up taxes, but this would be desperately unpopular and definitely cause us to dip back into recession due to the negative impact on production and demand.
The only other option is to stay the course and do a bit of tinkering here and there, getting the private sector more involved and try to boost lending to business. Unfortunately, this is not the bazooka that the UK economy so desperately needs, but there’s little other option.
In Index spread trading, the FTSE 100 is just taking a breather this morning following two days of decent gains.
The big push higher yesterday was complimented by US markets which sustained their big rally higher so earlier we were calling the FTSE to open higher but we are just in the red at the time of writing at 5300.
In forex spread trading, yesterday morning saw forex traders regain some appetite for risk and buy into the euro, after the IMF indicated their €600bn Italian bailout package over the weekend.
However, as we stated, the euro should be treated cautiously as it was a bear market squeeze and by mid afternoon the single currency gave back most of the gains it made against the dollar.
This morning EUR/USD is trading marginally higher at $1.3335 and sees support at $1.3320 and resistance at $1.3410.
Not wanting to blow ones trumpet, but the potential technical rally mentioned in yesterday’s report materialised and investors witnessed the biggest intraday rally for gold seen since early November.
The pressure that gold has been under due to cautious traders shying away from the non-interest bearing assets was certainly eased in yesterday’s session. It was also helped by the equity and commodity markets in general. Gold closed up $31 at $1711.5.
Market participants will now be looking for the next technical level of $1725, which a failure to break could result in a drop back to last week’s lows. Currently, the precious metal is at $1707.2.
Like the other markets, energies weren’t going to miss out on a boost. With the help of the strengthening single currency and bullish stock markets, crude oil added just short of $2 to its price.
The other factor was optimistic figures from the US relating to ‘Black Friday’, which helped accentuate the demand for crude.
Only one thing dampened the session, and that was the narrowing Brent/US crude oil differential, which shrunk to $9 after considerable buying. At time of writing, Brent crude oil is trading at $109.2.
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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'Euro Rises on Forex Spread Trading Markets as IMF Discusses Italian Bailout' edited by SD, updated 29-Nov-11
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