FX Spread Betting: EUR/USD Rises as Greek Bond Holders Agree 50% Haircut
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The regular Financial Markets Update from Simon Denham of Financial Spreads.
For today's update >> Financial Markets.
Spread Betting 27 October 2011
So has the European sovereign debt crisis been averted? That question will be asked again in two or three year’s time when Spain and Italy have to roll over their debts.
Vast sums of money have been lent to them to the tune of nearly €1 trillion to Italy and half that for Spain. Throw into the mix the already bailed out PIIGS and any other possible future bailouts and the leverage of the existing EFSF to €1 trillion looks a little in significant.
The announcements yesterday were nothing more than that with the only thing that was agreed being the recapitalisation of Europe’s banks to the tune of just over €100 billion. At least our own banks come away from this with a bill of clean health as they won’t need to partake.
Spread betting investors are still seeing lots of loose ends that need tying up and, even once they are, there’s still no guarantee that this will have resolved the crisis altogether.
If the heavily indebted European nations are still uncompetitive and struggling to grow in a couple of year’s time, even sooner perhaps, then they will be engulfed by their debts and we’ll be back to square one again. This time however it will probably be either Spain or Italy that will be the defaulting nations.
Growth is going to be the key to helping us get out of this mess. As we should have learnt by now, growth is not sustainable or even viable by simply borrowing more.
Growth starts with confidence so at least yesterday’s talk might create some clear blue water so we now know where we all stand, even if the finer details still need to emerge.
But that confidence seems a long way from coming to the UK’s shores.
If you were to open the papers today, all you would see is negative headline after negative headline. Claims that the European deal is a fudge and not enough, job losses across all sectors and falling output in our factories.
Now that much of the European issue is out of the way, at least for the next year or so, we the indices spread betting can markets focus on other things. That means back to the same old sluggish UK economy story, protests and yes, ‘let’s blame it on the government cuts’.
GDP numbers from the US will be closely watched today with a jump expected from 1.30% last quarter to 2.40% so at least there’s a bit of good news across the pond. We also get the weekly jobless claims and some pending home sales data which might lead to a little movement in US indices later.
There has been a lot of sideways trading for the EUR/USD pair on the FX spread betting markets this week, as traders waited for the big news to come out of Brussels yesterday. There was a mass sell off in the afternoon and the euro dived around 180 pips in an hour and half, as there was a lot of speculation over the outcome of the EU summit.
The news that Greek debt holders will accept a 50% loss and the rescue fund is to be increased to €1 trillion, has encouraged eager traders this morning and EUR/USD and is trading at $1.4035. This is a fundamentally-driven rally and so we could expect to see some further upside based on this news.
The pound saw a similar drop yesterday against the dollar for the same reason the euro fell and in similar fashion it bounced back as well.
The surge hasn’t been quite the same this morning, but the gist is that equities are up, safe havens are down, and risk appetite is back on table. Cable is trading at $1.5995 and sees support at $1.5955 and resistance at $1.6050.
After gold’s surge on Tuesday, the bulls couldn’t follow things through in yesterday’s session as we traded sideways for the session and that’s continued into today’s trade.
The precious metal is at $1715 this morning and looking a little directionless at the moment. The bulls are finding little reason to try and push the price higher and many gold traders seem to have been left scratching their heads following yesterday’s summit.
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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'FX Spread Betting: EUR/USD Rises as Greek Bond Holders Agree 50% Haircut' edited by SD, updated 27-Oct-11
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