The Euro has gone down again as the concerns in Europe resurface again and there’s high uncertainty in the markets with the eyes set on the European summit on the 28th and 29th of June. The Euro has plummeted as there are concerns that the European leaders will not come up with a solution to the problems the eurozone is facing.
EURSD has been going sideways for the last couple of days on the eve of the summit.
As the Greeks have elected a pro Euro government the currency has found some relief in that. Meanwhile the US economic indicators have not been well and that puts downward pressure on the dollar. So the EURUSD seems to have found a solid support at about 1.2333 and I expect some rallying for the Euro.
It’s not sure how much confidence the Euro will gain in the markets but I would not be surprised if it breaks 1.28 back again. It is still important to note that the uncertainty in the markets is high.
EURUSD has broken down the support of 1.2650 that I mentioned in the last post and the downward pressure continues. If this trend continues it is likely that the support of 1.22 on the monthly chart will be broken, which means 2 year lows of the Euro.
That would mean the next support would be at around 1.17 which a 7 year low. I don’t think, however, it will go that far as the focus will likely shift away from Europe eventually and the Euro will have to bounce back.
The uncertainty in Greece to form a new government as well as the financial troubles in Spain has put a downward pressure on EUR and has tipped the USD to rise against euro as the investors are looking for a safe haven.
This forms a downtrend in EUR/USD on a daily chart and reaches the lows of the beginning of the year, it as broken the support of 1.3000. It is possible that with a continued bearish pressure in Europe EUR/USD will break the 1.2650 support as well.
On Europe, traders are bulled up ahead of the ECB Thurs morning (we get the policy statement, which is usually a non-event, at 7:45amET, and the more important press conf @ 8:30amET), w/many thinking that Trichet will present something (either a specific policy or more likely verbal support) to calm the escalating tensions.
The FT article Wed morning (“Trichet hints at bond purchase rethink” http://bit.ly/hDX3JQ) seemed to spark speculation of a major unveiling Thurs morning, although it doesn’t seem like the ECB will do much more than back away from its aggressive exit strategy rhetoric express confidence in the eurozone economy and the euro itself (specifically this morning, Reuters is reporting that Trichet will pledge to keep its unlimited 3-month operations in place but will not announce massive new bond purchases; the FT Alphaville writes that many leading economists are downplaying the chances for a “shock and awe” announcement and are preparing for a disappointment http://bit.ly/ijMsEW).
There was some confusion Wed around 12pmET, when Reuters crossed a headline stating that the US was considering bolstering the eurozone bailout fund via its contributions to the IMF – this caused the SP to spike another 5-6 points and stocks held those gains despite the story being denied by the WSJ (overnight a few US officials, inc. Rep Pence, spoke out against the idea of the US contributing financial assistance to Europe).
Events to Watch for the Week Coming Up
The most important catalysts will be on the economic front. We will get the Nov manufacturing PMI/ISM readings (China hits late Tues night and the US comes Wed morning) as well as the US jobs report on Fri 12/3 (the St is looking for 143K in total non-farm adds; recall the Oct BLS reading was pretty encouraging). The Beige Book will be published on Wed 12/1 and also is in focus. On the corporate front, we will get auto sales on Wed and retail same-store-sales on Thurs (the retail sales releases will give companies an opportunity to update the St on how Black Friday went). ALTR and LSTR both will be publishing mid-Q updates (the first such updates for the CQ4). There are a few more Oct-end earnings (OVTI, ARO, SNPS, AVGO, TOL are among them). Looking towards Washington, the White House will host a summit on Tues 11/30 between Obama and the new GOP leadership (as far as the market is concerned, the big topic will be the fate of the Bush tax cuts). This coming weekend (Nov 27-28), we could see news on the Ireland bailout front (on Fri, press reports indicated that a formal aid package for Ireland could be unveiled this Sunday 11/28). The ECB meeting on Thurs 12/2 will be very important as the bank will discuss its exit strategies for 2011. Also – the US carrier group (led by The George Washington) is due to arrive off the coast of Korea and will be conducting military exercises w/the S Korean government starting Sunday (this will raise the risk of more altercations).
Ireland downgraded by S&P (out Tues night) – Standard & Poor’s Ratings Services said today that it lowered its long-term sovereign credit rating on the Republic of Ireland to ‘A’ from ‘AA-’ and its short-term rating to ‘A-1? from ‘A-1+’. At the same time, Standard & Poor’s said that it placed both the short- and long-term ratings on CreditWatch with negative implications. “The lower ratings reflect our view that the Irish government will have to shoulder additional costs associated with further capital injections into Ireland’s troubled banking system.
Irish Banks – S&P To Assess Impact Of Irish Downgrade On Banks – The consensus is that the fortunes of the Irish banking system have become very closely intertwined with those of the Irish sovereign and that the sovereign downgrade could have a negative impact on the creditworthiness of the four rated domestically owned Irish banks, namely Allied Irish Banks PLC (BBB+/Negative/A-2), Anglo Irish Bank Corp. Ltd. (BBB/Watch Neg/A-2), Bank of Ireland (A-/Negative/A-2), and Irish Life & Permanent PLC (BBB+/Negative/A-2). S&P
North Korea shells a South Korean island, killing one South Korean marine and wounding several others; South Korea has scrambled fighter jets to the area and raised its military alert to the highest level. South Korean president Lee Myung Bak has convened an emergency cabinet meeting. The North Korean attack comes as South Korea’s annual Hoguk military exercises are under way (according to the NYT, the exercise has been sharply criticized by Pyongyang as “simulating an invasion of the North” and “a means to provoke a war.”). Low-level border skirmishes across the demilitarized zone and particularly the NLL are not uncommon even at the scale of artillery fire. Stratfor/WSJ/NYT.
The most important catalysts will be on the economic front. We will get the Nov manufacturing PMI/ISM readings (China hits late Tues night and the US comes Wed morning) as well as the US jobs report on Fri (the St is looking for 143K in total non-farm adds; recall the Oct BLS reading was pretty encouraging). The Beige Book will be published on Wed 12/1 and also is in focus.
On the corporate front, we will get auto sales on Wed and same-store-sales on Thurs. ALTR and LSTR both will be publishing mid-Q updates (the first such updates for the CQ4). There are a few more Oct-end earnings (OVTI, ARO, SNPS, AVGO, TOL are among them). Looking towards Washington, the White House will host a summit on Tues 11/30 between Obama and the new GOP leadership (as far as the market is concerned, the big topic will be the fate of the Bush tax cuts).
The coming week will see news flow slow down meaningfully, w/the US observing Thanksgiving on Thurs (US equities markets are closed on Thurs and will close early at 1pmET on Fri).
For the Fed/Treasury, all eyes will be on the auctions Mon-Wed (2s Mon, 5s Tues, and 7s on Wed) given the back-up in yields and the last round of sales (recall the last auctions, on Nov 8-10, were relatively sluggish, esp. the 30yr).
