Intraday Market Thoughts

Euro Slump Continues Despite Bond Market Rebound

by Ashraf Laidi
Jul 11, 2012 0:26

The euro fell to a fresh two-year low on Tuesday after the German constitutional court hinted at a possible delay in a decision on the ESM. The yen was the top performer while the euro lagged. Second-tier data fills the Asia-Pacific calendar. Premium shorts in EURUSD & EURJPY nearing their targets. Gold hit final 1575 target. Ashraf will host CNBC Squawk Box on Wednesday at 6:20 am BST.

The German constitutional court was cryptic and indecisive as it questioned top lawmakers and the head o the Bundesbank. The court asked Weidmann if a delay of 2-3 months on a decision would disrupt markets, raising fears that it will be a lengthy process.

It is possible that a decision will come in weeks and a temporary decision could come even sooner but the market is having a difficult time evaluating the merits of anti-ESM claims.

Overall, the German delay is not a major setback but market was certainly eager to sell euros. Shortly after the open of US trading, EUR/USD slumped to the Monday low of 1.2262. After a short-lived bounce, the pair fell as low as 1.2236.

In the crossfire, EUR/AUD broke below 1.20 for the first time and EUR/GBP hit a long-term low.

Other data was mixed. The IMF forecast a larger Italian deficit but Italys finance ministry cancelled a planned mid-August bond auction saying revenues were higher than expected.

The pound also slumped after the BOEs King said the expected recovery is not materializing. NIESR also said the economy contracted at a 0.2% pace in the quarter ending in June.

At 2350 GMT, Japan releases the May tertiary industry index. Expectations are for a 0.2% after the 0.3% fall in April. At the same time, the June CGPI is expected to fall 1.0% y/y on lower resource prices.

At 0030, the focus shifts to Australia for Westpac July consumer confidence. Previously, the index stood at 95.6. An hour later, May Australian home loans are expected to rise 0.8% m/m.

Comments from the RBAs Lowe are expected at 2300 GMT.

Our Premium shorts in EURUSD and EURJPY are nearing their 4 targets, ditto for AUDUSD. Rest of trades are on GBPUSD, 1 existing on USDJPY and USDCAD. Gold hit target. Direct access to those trades and latest charts is found here: Non Subscribers can join here:


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