Another Rare 2% Daily Decline in EURUSD

Greek PM to meet President at 16:00 GMT EURUSD on its way of posting a rare 2% daily decline. There have been only 5 of such days over the past 3 years, 2 of which occurred last month; (-2% decline Oct 31 after referendum announcement and +2% on Oct 27 after the EFSF/Troika/recap deal). EURUSD 1 month volatility surges 10%, promising more of such days to come. EURUSD vulnerable to 1.3180 before month-end.

day as willingness to risk disappears from the market. European equity markets are deep in red and EURUSD is 200 points off today's highs.

Reports that PM Berlusconi would resign after austerity measures are approved did not help to bring down Italian soaring cost of borrowing. 10 year yield broke above 7% today and BTP futures trading had to be interrupted due to high volatility as real money accounts have been liquidating their BTP holdings. News that the margin on Italian debt has been increased on all durations by Clearnet clearing house as part of their regular risk management led to additional sales. Italy-Germany 10 year spread and Italian CDS have also reached record highs. The ECB has been buying Italian debt via the SMP as has become the norm.

The 7% threshold is closely watched as other troubled countries (Ireland, Greece, Portugal) needed financial aid after their debt reached similar levels. With the EFSF too small to bail out Italy, the situation in the Eurozone is getting dangerously close to being beyond control.

September UK trade deficit widened to GBP -9.8 bln from GBP -8.6 bln which is the worst result since data started to be collected in 1998. Record imports are blamed for such a poor print and GDP growth is likely to be negatively impacted. GBPUSD trades below 1.60 after touching 1.6114 just a few hours earlier.

Fed chairman Bernanke will speak at the Fed conference in Washington at 9:30 am and September wholesale inventories are seen higher at 0.6% from 0.4%.

NZD traders should pay attention to RBNZ financial stability report that will be released at 3:00 pm.

P Urban & A Laidi