We hit EUR/USD lows last week of 1.3210 with the EUR bouncing up on Mondays trading. With the upcoming EcoFin meeting tonight and the rumours that the IMF would fund Italy (since denied) it gave the EUR a bout of strength. However, I think it’s more a case of a corrective movement in the EUR/USD pair short term and we may see some more EUR strength dependent on events today however I think the trend for further weakness will continue in the medium to long term. Investors are still very wary as it is ‘more discussion’ rather than any fundamental leaps forward on the debt crisis. With the EcoFin meeting commencing tonight we’ll see the next tranche of aid being released to Greece and the presentation of the improved EFSF. We have an EU Summit on Dec 9th and we’ll see if another wave of short term optimism has any legs. I think it’ll be history repeating; more noise, an uptick in the EUR then detail’s will be concentrated on and we’ll see a sell off and the EUR come off again. If you ask anyone involved with Foreign Exchange “what do you think on the EUR” you’ll invariably be answered with “it’ll go up, and it’ll go down”.
The US racked up record breaking consumer sales over the thanksgiving weekend giving life to the US market despite continuing poor job and housing markets. All focus remains on the Eurozone however with negativity still widespread. Moody’s have declared that all Eurozone countries are under threat of downgrades to their status should they not act quicker in regaining market confidence. Moody’s doesn’t believe we’ll see widespread defaults and that the Euro area will be preserved however this ‘positive’ scenario is still not without risk. Indeed, there could be negative rating implications in the interim period whilst European officials continue to kick the can down the street and not address the problems.
The beginning of this week has seen confidence return to markets on the hope, and I say that word with some scepticism, that the powers that be will approve ‘decisive measures’ to tackle the debt crisis. The film Groundhog Day comes to mind…
On data released today we’ve had positive figures on Nationwide House Prices out of the UK this morning. At 10am we have out of the EMU consumer confidence followed by the same data release out of the US this afternoon.
We’ll see markets quite jumpy over the next few days with a lot of data and commentary to contend with alongside bond auctions that have been recently poorly received. The results of these bond auctions are coming more into focus highlighting the severity of funding problems facing countries in the Eurozone. Belgium had to pay a higher price to issue 10 year debt today and with sales upcoming for France, Italy and Spain we could get a truer picture of where we are.
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