EUR/USD: 1.2690
Although the Euro did much as we expected and has broadly consolidated, with the Euro at almost the same levels seen this time yesterday, there has been plenty to concern the market, and to keep a decent cap on any chance of a rally in the Euro. Fitch downgraded Greece, to somewhere between junk and default status and has said it will down grade ALL EU countries to "Rating Watch Negative" if, following the election it feels the risk of a Greek exit from EMU is likely. In other words, if the vote is not to continue with the agreed austerity package, then the borrowing costs are likely to rise all round. Spain saw the beginning of this today where the bond auction saw rates rise dramatically, with the 10 years homing in on 7%. EUR 2.494b of bonds were sold today, and demand was good, but Yield on Jan 2015 bond came in at 4.375%, up from 2.89% and April 2016 bonds were at 5.106%, up from 3.374% at the previous auction on March 15. To add to today’s woes, Spain was confirmed to be in recession, with GDP shrinking by 0.3pc in Q1, the same reading as Q4 11. Spanish Banks also had a tough day with Bankia, - recently nationalised, - declining by 16%, after news that more than Eur 1 bio has been withdrawn from deposit accounts over the last week.
Not to be left out of the action, Moody’s has today downgraded 20+ Spanish banks, which has kept the pressure on markets late in the US session.
Elsewhere the new French finance minister has said that France will not ratify the EU fiscal pact without a growth element being added, adding to its growing differences with Germany.
Also of note was the Philadelphia Manufacturing Survey, which was pretty awful and came in at -5.8 against expectation of + 10 and reminds us not to blindly buy dollars.
Equity markets all had another tough day DAX -1.18%, CAC -1.2% S+P -1.5%
So where do we go from here? Well at present we are managing to hold on above the base of the channel. A low of 1.2666 has been seen today, as we head slowly towards the 1.2623 13 Jan low. Ahead of the G8 meeting today I would doubt we are going to take this out, just in case they actually come up with something that puts a vaguely positive light on the situation. Unlikely but possible, and given the weight of short positions in the market, any bounce could be quite painful. As can be seen, the 4 hour charts are still quite oversold, so gaining the momentum for a sustained move to the downside is going to be tricky from this level. Although the dailies are pointing to lower levels, - and a break of 1.2623 would target 1.2575, the 23 Aug 10 low, and then 1.2505 (13 Jul 10 low) – right now I suspect we are in for more of the same and it may be we have another rangebound day. Being a Friday anything could happen late in the session, but for the next few hours I suspect yesterdays range could hold for now. Thus use 1.2665/1.2760 through the Asian session and possibly early Europe as well. Above 1.2760 would lead to 1.2810 (23.6% of 1.3282/1.2666) and above here would lead to 1.2900 (38.2%).
The only data out today is the German PPI, with little of interest otherwise. I assume all eyes will be on the G8 for some guidance, so it could be that we have a quiet drift into the weekend and a nervous wait for any weekend announcements ahead of a pretty nervous start in Asia on Monday. I t may be though that we see a late selloff, given the current state of concern in the markets so be flexible and keep stops tight.
Good luck, good w/e!
