EU Morning Report

Sterling plummets after the Bank of England minutes

  • The euro edged higher today supported by a rise in world equities and commodity prices. The single currency broke above the 1.43 level against the dollar jumping as high as 1.4306 from 1.4194 but remains vulnerable to Greece's debt crisis. EU finance ministers failed to decide how to tackle Greece's debt crisis while opinions over how to pull Greece from its debt problems vary. ECB members Juergen Stark and Constancio said that a Greek debt restructuring is not the solution for Greece's debt problems while Bini Smaghi argues that Greece is in the middle of touch consolidation measures and an Argentine-style default. ECB President Jean-Claude Trichet is due to speak at 13 GMT.
  • The US dollar got a modest boost after the release of the FOMC policy meeting minutes. The minutes showed a discussion of different exit strategies but there was no indication whether the Federal Reserve is ready to start normalizing its monetary policy. Interest rates are kept at ultra-low levels as Housing data and Retail Sales continue to be weak. Against the Swiss franc, the greenback fell to 0.8765 from 0.8843.
  • Against the Japanese yen, the dollar rallied to a three-week high at 81.80 from 80.93. Gross Domestic Product revealed that Japan's economy shrank by 0.9% in the first quarter following the massive earthquake and tsunami that hit the country in March. The Australian dollar rose to 1.0680 against the dollar from 1.0568 supported by a heightened risk appetite and rising commodities.
  • Sterling plummeted yesterday following the Bank of England policy meeting minutes. The vote split between the nine MPC members remained unchanged with three of the members voting for an interest rate hike. The minutes revealed policymakers' concerns over the country's economy and fears that monetary tightening at this point may prove to be disastrous. Higher inflation and slow growth is a situation that may push the country into a state of stagflation. The dovish minutes knocked the British pound as low as 1.6105 versus the dollar from 1.6288.
  • Oil prices ticked higher rising to 100.95 dollars a barrel from 97.25. Gold also rose to 1499.89 dollars an ounce from 1488.17. Silver edged higher at 35.71 dollars an ounce from 33.99.

Currency to watch out for: EURUSD & USDJPY  

  • § The EURUSD pivot point is at 1.4205 with a preference to enter Long positions at 1.4215
  • § The USDJPY pivot point is at 81.35 with a preference to enter Long positions at 81.40              

Today's calendar and market movers:

  • § UK Retail Sales in April is forecasted to gain 0.8%
  • § US Initial Jobless Claims is forecasted to fall to 420K

Equity Markets:                                                

US equities were positive on Wednesday with the S&P500 trading up 0.88% and the DJIA up 0.65%. The European bourses were also positive with the FTSE trading up 1.07%, the DAX up 0.65% and the CAC up 0.92%. The NIKKEI and the HSI at the time of writing are trading down -0.42% and up 0.77% respectively.

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