EU Morning Report

US policymakers agree on a US debt ceiling plan

  • The US dollar strengthened against a basket of currencies as US policymakers reached a last-minute deal on the US debt ceiling. Concerns for a US default faded after US President Barack Obama announced a deal to raise the debt ceiling before the August 2 deadline. Investors are now expecting the Senate and the House to vote and approve the deal in Washington later today. Risk appetite rose, world shares turned positive and demand for precious metals was lower. Against the Japanese yen, the dollar recovered from a four month low at 76.72 in a relief rally rising to 78.03. Versus the Swiss franc, the dollar rebounded from a record low at 0.7851 to trade at 0.7952. On Friday, data revealed that Gross Domestic Product in Q2 fell more than expected showing a 1.3% gain while 1.6% was expected.
  • The euro shed 2% against the dollar dropping to as low as 1.4229 from 1.4535. Eurozone debt contagion concerns continue to weigh on the single currency as Cyprus is feared to be the next country seeking for bailout. Credit rating agency Moody's cut Cyprus rating by two notches last week on concerns over the country's economy following the catastrophic blast near the main power station. Moody's also expressed concerns over the large exposure to Greek banks as well as the lack of political unity in the country. Attention now shifts to the eurozone PMI Manufacturing data released later today.
  • The Australian dollar rose ahead of the Reserve Bank of Australia interest rate decision. The market is pricing in a possible interest rate hike after data showed that inflation in the country is escalating. Concerns over China's growth eased after PMI figures was higher than expected further supporting the Aussie. Versus the dollar, the Aussie is trading near a 28-year high hitting 1.1059 from 1.0910.
  • Oil prices ticked higher to 97.27 dollars a barrel from 94.94. Gold edged lower to 1607.40 dollars an ounce from a record high at 1632.50. Silver also ticked lower to 39.26 dollars an ounce from 41.43.

Currencies to watch out for: EURUSD & USDJPY  

  • § The EURUSD pivot point is at 1.4325 with a preference to enter Long positions at 1.4335
  • § The USDJPY pivot point is at 77.25 with a preference to enter Long positions at 77.30
  • § The OIL pivot point is at 96.00 with a preference to enter Long positions at 96.00
  • § The Gold pivot point is at 1620 with a preference to enter Short positions at 1620                           

Today's calendar and market movers:

  • § Europe Purchasing Manager Index Manufacturing in July is forecast to fall to 50.4
  • § UK Purchasing Manager Index Manufacturing in July is forecast to fall to 51.0
  • § Europe Unemployment Rate in June is forecast to remain unchanged at 9.9%
  • § US ISM Manufacturing in July is forecast to rise to 54.9

Equity Markets:                                           

US equities were negative on Friday with the S&P500 trading down -0.65% and the DJIA down -0.79%. The European bourses were also negative with the FTSE trading down -0.99%, the DAX down -0.44% and the CAC down -1.11%. The NIKKEI and the HSI at the time of writing are trading up 1.34% and 1.46% respectively.

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