News - 19 July 2010
The recent Euro surge finally ran into resistance on Friday, EURUSD briefly traded above 1.30 before falling back and now sits in the mid 1.29. This Strength will be tested over the coming week for several reasons. Firstly, Ireland was downgraded from Aa1 to Aa2 by ratings agency Moody’s. They blame the worsening financial situation facing the government, weakened growth prospects & recognition of contingent liabilities in the SPV created to rescue the Banking system. Umbrella anyone? Secondly, Hungary was denied a credit line of €20 billion from the EU/IMF over the weekend, a very unusual step, due to a lack in confidence in the new Hungarian government’s budget plans. The Florint has weakened off, but the extreme volatility some commentators were predicting in the markets today has not materialised as yet. Lastly, Friday sees the long awaited publication of the EU stress test results. As mentioned before in this report, the tests are designed to shore up confidence in the EU banking system. The results all boil down to credibility. If the market believes that the tests do not illuminate the health of the banks tested then expect investors to express this sentiment though selling the Euro as well as the bank stocks themselves.
The Dollar continues to weaken; reports now show that the market is now net short on USD, finally reversing the previous trends of net short Euro and Sterling. Continuing fears over a double dip recession in the States and disappointing CPI and PPI data last week have a large drop in Dollar sentiment, and it is this rather that positive data in the UK or Euro zone which has driven both pairs large moves.
A quite start to the week in terms of data, but on Wednesday we see the release of the Bank of England’s minutes, which will closely examined for any change in voting from MPC members. On Friday UK GDP figures are also released along with the results of the bank Stress tests.
A report by Alistair Cotton for Reuters Insider