Intraday Market Thoughts

Banks Debt Meeting Set to Weigh on Euro

by Kyle Morrison
Jul 6, 2011 8:34

International banks meeting set to weigh on the euro in the wake of Moodys Portugal downgrade, UK shop price data and house prices, US non-manufacturing ISM. Both EURJPY and EURUSD are 10 pips away from Tuesday's Premium trades.

You have to hand it to the ratings agencies, every time Europe's leaders look to keep all their debt balls in the air with respect to the sovereign debt crisis, they get thrown another one to juggle. While Moody's actions in downgrading Portugal to junk status may not have been entirely unexpected the timing of it could not really have been worse, given today's meeting of international banks in Paris to discuss a deal to discuss the roll-over of a whole load of Greek bonds on a voluntary basis without triggering a credit event.

When slowing economic growth across Europe is thrown into the mix as well as concerns about Italy's banks and a new austerity budget, with Italian 10 year yields pushing back towards 5%, there are increasing concerns that EU policymakers are starting to lose control of the situation.

Moody's reasons stemmed from their belief that Portugal could well need another bailout with the likelihood of private sector participation. They also stated that banks rolling over Greek bonds may incur impairment charges.

As would be expected the single currency slipped back on the news of the downgrade, however yesterdays disappointing economic data hadn't really helped in that regard before that, and today's German factory orders for May could well disappoint as well, with expectations of a fall of 0.5%, from Aprils rise of 2.8%. For now the single currency is finding support above the 55 day MA at 1.4410.

Gold prices surged on the back of the downgrade towards the 55 day MA at $1,516.

The pound had a slightly better day after better than expected services PMI, however the retail sector continues to feel the brunt of consumer concerns about the UK economy and today's BRC shop price index data for June continue to show upward pressure on prices, coming in at 2.9%

House price data continues to trade sideways with June prices showing no change expected on a month to month basis.

US non-manufacturing ISM for June is due out later and markets will be hoping that it out performs in the same way as the ISM manufacturing did last week and surprises to the upside.



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