EU Morning Report

Moody's cut Portugal's sovereign rating by four notches

  • The euro plummeted yesterday after rating agency Moody's cut Portugal's sovereign rating by four notches to Ba2. Moody's explained the downgrade of Portugal's sovereign to a non-investment territory by emphasizing on the possibility the country will require a second round of financial bailout. The outlook on Portugal's rating remains negative raising fears that Portugal may follow Greece and fall in a deep debt crisis. Also, comments by rating agency Standard & Poor's that a debt rollover plan for Greece puts the country at risk as it may cut the country's rating to a selective default. Versus the greenback, the euro dipped to 1.4396 from 1.4540. Today, the single currency recovered some ground ahead of the ECB Interest Rate decision. Investors expect rates to rise by 25 bps as hawkish ECB policymakers said that 'strong vigilance is warranted' in order to maintain price stability. CPI reinforced expectations after it revealed that inflation remains elevated gaining 2.7% in June, which is a well above target figure.
  • The US dollar firmed against its major counterparts but fell versus the safe haven Swiss franc and Japanese Yen on heightened eurozone debt contagion fears. Focus turns to the US ISM Non-Manufacturing released later today. Against the Japanese yen, the dollar fell to 80.80 from 81.18.
  • The Australian dollar advanced today recovering losses made after the central bank's Interest Rate Decision. The Aussie remains firm ahead of the jobs data which is expected to show a significant increase in the number of employed people in June. Against the dollar, the Aussie dipped to 1.0732 from 1.0663. Sterling rose yesterday after PMI Services data unexpectedly rose in June. Today, sterling declined ahead of the BoE Interest Rate meeting. The prospect of additional quantitative easing is alive as the UK economy is struggling to escape recession. Sterling jumped to 1.6127 dollars from 1.5990.
  • Oil prices rose to 97.77 dollars a barrel today from 94.33. Gold gained 1.6% edging higher to 1516.60 dollars an ounce from 1493.15. Silver gained 5.8% rising to 35.81 dollars an ounce from 33.84.

Currencies to watch out for: EURUSD & USDJPY  

  • § The EURUSD pivot point is at 1.4400 with a preference to enter Long positions at 1.4410
  • § The USDJPY pivot point is at 80.80 with a preference to enter Long positions at 80.80
  • § The OIL pivot point is at 95.65 with a preference to enter Long positions at 95.65
  • § The Gold pivot point is at 1500 with a preference to enter Long positions at 1500                      

Today's calendar and market movers:

  • § Europe Gross Domestic Product in Q1 is forecast to gain 0.8%
  • § US ISM Non-Manufacturing in June is forecast to fall to 54

Equity Markets:                                               

US equities were negative on Tuesday with the S&P500 trading down -0.13% and the DJIA down -0.1%. The European bourses were mixed with the FTSE trading up 0.11%, the DAX down -0.05% and the CAC down -0.61%. The NIKKEI and the HSI at the time of writing are trading up 0.81% and -0.48% respectively.

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