EU Morning Report

Euro plummets as expectations of an early rate hike fade

  • The euro fell today as euro zone debt problems resurfaced. Rating agency Moody's downgraded Spain's debt and warned of a further downgrade. Moody's also cut Greece's debt by three notches this week and warned that the country's default risk is high. Sovereign bond yields remain at high levels and euro zone debt contagion fears started to haunt the euro. Against the dollar, the single currency broke below the 1.39 level falling as low as 1.3802 from 1.3940. Investors appear cautious ahead of an EU summit on Friday, which is expected to unveil measures to tackle the euro zone debt crisis. As focus now turns to the euro zone sovereign woes, expectations of an early interest rate hike by the ECB fade.
  • As the euro slides, the US dollar strengthened against a basket of currencies supported by a heightened risk aversion in the market. Against the Japanese Yen, the dollar gained ground extending gains for the fourth straight day. Today, the pair rose as high as 82.94 up from 81.60 traded yesterday.
  • Sterling fell ahead of the Bank of England Interest Rate meeting today. Against the dollar, sterling dropped to 1.6156 from 1.6241 traded yesterday. Investors are expecting rates to remain unchanged at 0.5% but speculation on the central bank's policy intentions is heavy.
  • The Australian dollar slid against the greenback today weighed by poor employment data. The country's unemployment rate remained unchanged at 5% but the number of people employed in February surprisingly fell. The Aussie is also weighted by a report that unveiled China's unexpected trade deficit in February. Investors are now concerned that the central bank will not raise interest rates soon. The Aussie tumbled to a two week low at 1.0033 dollars from 1.0131. Aussie's neighbor, the Kiwi, plummeted to 0.7349 versus the greenback after the Reserve Bank of New Zealand interest rate decision. Policymakers decided to cut interest rates by 50 bp more than the 25 bp the market was expecting.  
  • Oil prices edged higher up to 105.00 dollars a barrel from 104.06. Gold prices also rose to 1431.34 dollars an ounce from 1424.45.

Currency to watch out for: EURUSD & USDJPY

  • § The EURUSD pivot point is at 1.3855 with a preference to enter into Long positions at 1.3865
  • § The USDJPY pivot point is at 82.60 with a preference to enter Long positions at 82.65              

Today's calendar and market movers:

  • § UK Industrial Production in January is forecasted to gain 0.4%
  • § UK Interest Rate Decision is forecasted to keep the rates unchanged at 0.5%
  • § US Initial Jobless Rate is forecasted to rise to 378K

Equity Markets:

US equities were positive on Wednesday with the S&P500 trading down -0.14% and the DJIA trading down -0.01%. The European bourses are also positive with the FTSE trading down -0.63%, the DAX down -0.46% and the CAC down -0.55%. The NIKKEI and the HSI at the time of writing are trading down -1.46% and down -0.72% respectively.

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