Yesterday ECB president Mario Draghi pledged the ECB’s support for the single currency. Draghi declared he is “ready to do whatever it takes” to ensure the survival of the Eurozone.
As expected markets across the board reacted positively to the news, the EURO/ USD jumped 1.2 per cent from a session low of 1.2116 to session high of 1.2329.
These are confident comments from a Eurozone leader having to confront the possibility that Spain will require a full bailout within the not too distant future. Although his comments drove down the yield on Spanish bonds they are still offering a yield of around 7 per cent, let’s not forget that Ireland, Portugal and Greece’s government bonds were all offering similar returns when the IMF had to step in. The Spanish Prime minister recently announced that Spain would not need a bailout of any sorts, given that Spain makes up the 4th largest economy in the eurozone you have to accept that any other stance would only of caused mass panic across the euro.
If you are looking to buy euros then you could certainly argue it’s a great time to do so at current levels, although my own personal belief is that GBP/EURO will go through the 1.2800 barrier inside the next few weeks as more bad news is set to come from the 17 nation currency.
Elsewhere the greenback headed for a weekly loss versus most of its major peers amid speculation the Federal reserve will engage in a third round of quantitative easing or QE3.The combined possibility that the Fed begins to pave the way for QE3 and that we see, for instance, a reopening of the Securities Markets Program from the ECB would argue for a softer dollar and risk-on at least in the short-term.
All eyes will turn to the USA’S GDP figures due out today. Any shortfall in this figure will see further argument for QE. The Dollar traditionally regarded as the safe haven currency is failing to encourage worried investors. Instead we may see key market makers looking to currencies such as the Australian and Singaporean dollar as a preferred safe haven. We will see Germanys Consumer price index figures out this afternoon, these are expected to show 1.7% growth. This figure will be eagerly anticipated given the recent slowdown in Germanys economy.
I believe we will see USD weakness as I expect their GDP figure to be weaker than first thought. That coupled with euro strength will be the most likely outcome across the board.
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