EU Morning Report

Euro remains under pressure weighed by risk aversion

  • The euro weakened against its major counterparts as the euro zone debt crisis deepens. On Friday, credit rating agency Fitch downgraded Greece's debt by three notches knocking it down to B+ from BB+ and keeping the rating on a negative watch. Italy's credit outlook was also downgraded from stable to negative by rating agency Standard and Poor's. Fitch also downgraded Belgium's outlook to negative from stable. Today, the euro managed to recover some of its losses but still remains vulnerable to the European sovereign debt crisis. World equities plummeted while Greek bond yields hit record high levels. Against the dollar, the euro dipped below the 1.40 level to 1.3968 from 1.4134 and the pair was last traded at 1.4073.
  • The US dollar strengthened hitting a seven-week high against a basket of currencies yesterday. Heightened risk aversion continues to support the greenback while the euro zone debt problems escalate. Against the Swiss franc, the dollar jumped to 0.8893 from 0.8755 after the Swiss National Bank Vice Chairman expressed his concerns about the franc's rise. Against the Japanese yen, the dollar climbed to 82.08 from 81.31. Speeches from Federal Reserve members Hoenig, Plosser and Duke are expected later today.  
  • The Australian dollar plummeted as growing concerns about the euro zone debt problems spurred a risk aversive mood weighing on the Aussie. Against the dollar, the Aussie fell to a five-week low at 1.0478 from 1.0640, a decline of 1.5%. Today, the pair ticked higher trading at 1.0561 helped by the rising commodity prices.
  • Sterling slipped hitting a seven-week low versus the stronger dollar on investors' lower demand for risk. Investors' eyes turn to the UK Public Sector Net Borrowing data which is expected at 8:30 GMT.
  • Oil prices rose to 98.49 dollars a barrel today from 96.28. Gold also jumped to 1518.60 dollars an ounce from 1503.80. Silver edged higher at 35.32 dollars an ounce from 34.35.  

Currency to watch out for: EURUSD & USDJPY  

  • § The EURUSD pivot point is at 1.4125 with a preference to enter Short positions at 1.4115
  • § The USDJPY pivot point is at 81.55 with a preference to enter Long positions at 81.61           

Today's calendar and market movers:

  • § UK Public Sector Net Borrowing in April is forecasted to fall to 5.35B
  • § Europe Industrial New Orders in March is forecasted to fall 1.3%
  • § US New Home Sales in April is forecasted to gain 1.7%

Equity Markets:                                             

US equities were negative on Monday with the S&P500 trading down -1.19% and the DJIA down -1.05%. The European bourses were also negative with the FTSE trading down -1.89%, the DAX down -2% and the CAC down -2.10%. The NIKKEI and the HSI at the time of writing are trading up 0.14% and 0.07% respectively.

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