EU Morning Report
Euro plummets as the euro zone debt crisis deepens
- The euro weakened against its major counterparts as the euro zone debt crisis deepens. On Friday, credit rating agency Fitch downgraded Greece’s debt by three notches knocking it down to B+ from BB+ and keeping the rating on a negative watch. Italy’s credit outlook was also downgraded from stable to negative by rating agency Standard and Poor’s. Greek 10-year bond yields rose to a fresh high while world equities plunged. ECB member Weidmann said that Greek debt may no longer be accepted as collateral for funding and that further financial support should not be taken for granted. French Finance Minister Lagarde emphasized on the bankruptcy threat for Greece while the IMF member Chopra said that a solution to Greece’s debt problems must urgently be agreed. Versus the dollar, the euro dipped to 1.4041 from 1.4345 traded on Friday.
- The US dollar strengthened on Friday against high yielding currencies such as the euro and the Australian dollar. Against the safe haven Swiss franc, the dollar fell to a two-week low at 0.8747 from 0.8855 and today the pair is trading higher at 0.8824. Against the Japanese yen, the dollar slid to 81.60 from 82.02 weighed by investors’ lower appetite for risk.
- The Australian dollar plummeted after disappointing Factory and Manufacturing data in China. China is Australia’s largest trade partner and a slower growth in China can hurt the demand for commodities. Escalating concerns about the euro zone debt problems spur a risk aversive mood weighing further on the Aussie. Against the dollar, the Aussie fell to a one-week low at 1.0538 from 1.0710, a decline of 1.6%.
- The Bank of England member Dale confirmed his support for an interest rate rise. He emphasized on his concerns about the rising prices and the need for an early rate hike but his hawkish stance failed to support the British pound. Sterling edged lower versus the stronger dollar falling to 1.6163 from 1.6304.
- Oil prices rose to 100.39 dollars a barrel from 96.37. Gold also jumped to 1518.49 dollars an ounce from 1486.68. Silver edged higher at 35.37 dollars an ounce from 34.20.
Currency to watch out for: EURUSD & USDJPY
- § The EURUSD pivot point is at 1.4200 with a preference to enter Short positions at 1.4190
- § The USDJPY pivot point is at 81.45 with a preference to enter Long positions at 81.55
Today’s calendar and market movers:
- § Europe Purchasing Manager Index Services in May is forecasted to fall to 56.5
- § Europe Purchasing Manager Index Manufacturing in May is forecasted to fall to 57.4
US equities were negative on Friday with the S&P500 trading down -0.77% and the DJIA down -0.74%. The European bourses were also negative with the FTSE trading down -0.13%, the DAX down -1.24% and the CAC down -0.92%. The NIKKEI and the HSI at the time of writing are trading down -1.47% and up -1.73% respectively.
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