Forex Markets: EUR/USD Spread Betting Pair Falls Ahead of ECB Rate Cut
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Spread Betting 5 July 2012
With the headlines focusing on the Libor issue, it's been nice to have something to discuss besides the single currency.
Nevertheless, today's focus will be back on the Eurozone as the ECB makes its interest rate decision. The spread trading market is fully expecting a cut of the base rate by 25 basis points to 0.75%.
One of the main things that the ECB has managed to preserve is a slightly higher interest rate, giving it some room to ease monetary policy when the time came. However, the fact that they have waited this long, assuming they do cut the rate, seems like shutting the stable door after the horse has bolted.
Such a move might help borrowers on the continent, but will do little to ease the pain within the banking sector.
The decisions taken at last week's EU summit may have given indices a little boost, but the underlying problems are still persisting. There are also many political hurdles that need to be overcome, with some member states reluctant to give their full support to what was agreed.
Opinion is becoming more and more polarised within the Eurozone. It seems that the Merkozy days are well and truly over, with relations between France and Germany becoming a little frostier.
Unfortunately, we can expect to be talking more about the euro as time goes on as it remains the dominant force behind the macro picture. And let's not forget that the single currency itself is seeing some decent volatlity.
As US investors return to their desk, their stock market indices seem to be in a relatively bullish mood.
The Dow Jones index is not far off testing 13,000 and the technology stocks are also seeing some good strength. Interestingly, the US markets are still seeing gains despite the fact that even their own economy is looking like taking a turn for the worse.
It seems that many investors are anticipating further stimulus from the Federal Reserve. What we've seen in the past few years is that central bankers simply can't resist pulling the trigger when things start looking bad.
This may not happen for a few months, as any move by the Fed ahead of the November elections could be seen as being partisan. However, when the elections are finished, and with the US economy going the way it is, there's an increasing chance that we will see something from them.
In contrast, the BoE is set to get the printing presses going again today, as the UK economy looks like it could remain in recession for a third quarter in a row.
Whilst this recession is not as deep as the one we saw between 2008 and 2009, things are still tough for consumers and businesses. Having said that, there are some serious doubts about whether any more QE will actually help us avoid negative growth in Q2.
Yesterday's session saw the FTSE 100 drop by a mere 3 points to 5684 as the index struggled with thin volumes.
This morning we're actually seeing a very small move to the upside, with the FTSE 100 currently trading at 5690. This rise will encourage the bulls who will be aiming for the near-term resistance levels at 5715 and 5760.
The EUR/USD market suffered from a bout of risk aversion yesterday, and the prospect of a drop in the base rate allowed the sellers to push the euro 77 points lower to $1.2526.
This morning, the forex markets are still seeing some weakness in the single currency as it has moved a little lower to $1.2515.
The gold market paused for breath yesterday, as investors decided to wait on the sidelines ahead of the crucially important central bank meetings in the UK, Europe and the US over the next two days.
In the end, the precious metal saw a slight decline of $2.07 to $1,614.80, with an anaemic daily range indicative of the quietness in the markets.
Some mild profit taking after the last few days' rally sent the price of WTI crude oil $0.69 lower yesterday, with the market closing at $87.06.
Energy investors will be carefully watching the ECB and BoE meetings today, hoping for additional stimulus measures that should kick-start increased demand for oil.
Since global coordination has been mentioned a few times, it could be an indication that the Fed will follow suit tomorrow, however this seems unlikely ahead of the Presidential elections.
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'Forex Markets: EUR/USD Spread Betting Pair Falls Ahead of ECB Rate Cut' edited by SD, updated 05-Jul-12
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