Talking Points

  • Euro: Portugal 10-Year Yield At Record-High, EU Summit Takes Center Stage
  • British Pound: Halts 10-Day Rally, Sideways Price Action

Euro: Portugal 10-Year Yield At Record-High, EU Summit Takes Center Stage

The Euro slipped to 1.3088 on Monday as the slew of ratings cut announced by Fitch sapped risk-taking behavior, and the single currency may continue to give back the advance from earlier this month should the EU Summit fail to prop up investor confidence. Indeed, heightening fears surrounding the debt crisis pushed the yield tied to Portugal's 10-Year bond to a record high of 15.79%, and the short-term reversal in the EUR/USD may gather pace in the coming days should Greece fail to reach a debt deal with private creditors.

As the EU Summit takes center stage, the group said the new fiscal pact would include an 'automatic' correction mechanism paired with measures to boost economic activity, but the efforts may be too little too late as the heightening risk for contagion continues to drag on market sentiment. In turn, the European Central Bank may once again encourage commercial banks to take advantage of its three-year loan facility on tap for the following month, but we may see President Mario Draghi continue to target the benchmark interest rate in an effort to stem the risk for a major economic downturn in 2012.

British Pound: Halts 10-Day Rally, Sideways Price Action

The British Pound weakened for the first time in eleven days amid the shift in risk sentiment, and the short-term pullback may turn into a larger correction as the GBP/USD maintains the broad range carried over from December. As the GBP/USD marks another failed run at 1.5800, the pair looks as though it will continue to track sideways over the coming days, and we should see the sterling fall back towards the 50.0% Fibonacci retracement from the 2009 low to high around 1.5270-1.5300 to test for near-term support. However, as the economic developments on tap for this week are expected to highlight an improved outlook for the U.K., positive data coming out of the region may keep the pair above the 50-Day SMA at 1.5555, and we may see the sterling continue to outperform against its major counterparts as market participants treat Cable as a safe-haven.

More to Follow...

--- Written by David Song, Currency Analyst