MORNING BRIEFING: EU officials still divided ahead of summit today; Portugal downgraded.

[RTFX-Trading]

MORNING BRIEFING: EU officials still divided ahead of summit today; Portugal downgraded.

What’s new:
Forex: Euro hits 10-month low on Portugal downgrade and more doubts on Greece.
China: Chinese officials reject US complaints on currency.
China: PBOC says Greek debt crisis is just the beginning.
Euro zone: Greece going to IMF would damage Euro, says Luxembourg’s Finance Minister.
Euro zone: EU officials still divided ahead of summit.
United States: Geithner says Yuan appreciation is important.
United States: Fed’s Kohn sees gradual US economic recovery.

Today:


Overnight Rates and Indices:
EURUSD: 1.3347 – 1.3284.
USDCHF: 1.0742 – 1.0693.
GBPUSD: 1.4960 – 1.4855.
EURJPY: 122.90 – 122.28.
USDJPY: 92.19 – 91.76.
DowJones: 10’836 -0.48%
NASDAQ: 2’398 -0.68%
S&P 500: 1’168 -0.55%
Nikkei: 10’829 +0.13%.
Shanghai: 3’019 -1.23%,
Gold: $1’091
Crude Oil: $80.55
 
Comments:

The Euro fell to a fresh 10-month low earlier this morning as comments from China central banker fuelled debt concerns about debt in the Euro-zone. Deputy Governor of the PBOC Zhu Min, said that the debt crisis in Greece was just the beginning. This triggered investors to sell Euro, which triggered stop-loss orders at 1.3300 against the US Dollar. These remarks increased concerns about debt levels in some European countries, especially after yesterday’s downgrade on Portugal’s debt rating to AA- by Fitch Ratings.

Meanwhile, Luxembourg’s Finance Minister voiced concern about the possibility of Greece going to the IMF for help.  He said that in the event that Greece does seek aid from the IMF, this would damage the Euro. He also added that if Greece implemented the steps prescribed to straighten out its deficit issues, it would not need the IMF. He also urged Greece to cut its military spending.

The Euro's weakness was compounded by the strength in the greenback, which has been supported by views that the Federal Reserve will further unwind liquidity measures, prompting rises in US yields, some traders said.

The Euro fell to 1.3284, its lowest since May 2009, against the Dollar. Against the Swiss franc, the single currency fell by 0.2 percent to 1.4253, hovering slightly above a record low of around 1.4232 francs hit on Wednesday.

We are now expecting further declines in EUR / USD as investors seem to be getting out of the Euro, and increasingly attracted by the Dollar. Price action seems set to test the psychological barrier at 1.3000, while a break of this level, will see it test the next key support at 1.2885. Interestingly, the USD / JPY has finally moved above the 200 day Moving Average at 91.58, closing at 92.17 yesterday. It also managed to break a multiyear trend line at 91.88. This is definitely bullish for the greenback, and we expect further price action towards 95.00 versus the Yen.

Good Day.

Emman Xuereb
Trading Desk
RTFX Ltd
Risk Disclaimer