Euro still cannon fodder

Euro still cannon fodder

The Euro remains on the back foot this morning as we draw near the end of a troublesome week for the single European currency.  Sovereign debt concerns continuing to dominate, prompting the single currency to hit two-month lows against the dollar.  The focus of attention has moved to Portugal as reports that Eurozone Politicians are placing pressure on the Portuguese to obtain support from a EUR 750 billion bailout fund. The underlying principle behind piling pressure on the Portuguese government is undoubtedly an attempt by the EU to border contagion effects and in particular to limit the likelihood of having to bail out Spain. Even with these ongoing efforts borrowing costs for the euro region’s most indebted nations are surging. The average yield investors demand 10-year debt from Portugal, Ireland, Italy, Greece and Spain hit over 7.50% yesterday, a record for the Eurozone.

Today the Euro/Dollar spot rate is resting at the medium strength Euro support level of 1.3265 having tested levels just below this point twice already. Asian markets are targeting similar deals in USD/Yen with the 84.00 level proving to be a sufficiently strong Dollar resistance point to defy further Yen weakness, for now. The Korean situation is much more relevant to Tokyo traders positioning and therefore Yen selling is more pronounced in Asian markets, leaving Europe to play a bit of a catch up in Euro/Yen and Euro Dollar. It is not unthinkable to imagine an early shake out overnight moves with profit taking on short Euro positions pushing Euro/Dollar back up to 1.3300 but with all eyes on the debt positions of Portugal, Spain and Belgium, any bounce for the single currency may be short lived. Traders will not want to be long of Euro over the weekend and with 95% of all Americans supposedly off today in order to buy, buy, buy anything that moves, we could see a sharp dip in the Euro’s value sooner today rather than later. Markets will be only too well aware that Ireland’s bail-out was agreed and announced late last weekend and that the headlines this morning concerning Portugal have a very similar ring to them…….

Today there is no significant EU or UK data and with the US markets looking likely to be specially thin in terms of activity and therefore volume, all of the action today will stem from developments in the Eurozone and will, as yesterday, finish early. The immediate outlook does appear risk negative / Dollar positive…..

Have a good weekend.

Report by Philip Ryan