MORNING BRIEFING: Dollar Shines Euro Whines

[RTFX-Trading]

MORNING BRIEFING:  Dollar Shines Euro Whines

What’s new:
FOREX: Euro loses ground
US Dollar: Dollar gains on ‘safe haven’ status
Ratings: Standard & Poors downgrades Greece and Portugal
Japan: Yen gains against most counterparts
Asia: Stocks end lower

Today:

Overnight Rates and Indices:
EURUSD: 1.3218 – 1.3144.
USDCHF: 1.0899 – 1.0841.
GBPUSD: 1.5288 – 1.5207.
EURJPY: 123.33 – 122.36.
USDJPY: 93.54 – 92.99.
DowJones: 10’991.99  -1.90%
NASDAQ: 2’471.47 -2.04%
S&P 500: 1’183.71 -2.34%
Nikkei: 10’924.79 -2.57%.
Shanghai: 2’900.33 -0.26%,
Gold: $1’164.40
Crude Oil: $82.10
 
Comments:

The US Dollar made the biggest gain in 5 weeks and the Euro hits one-year lows, as it registered its biggest one-day percentage loss in about a year.

Risk aversion was pushed higher after Standard & Poor’s downgraded the sovereign credit rating of both Greece and Portugal, US Dollar gains on flight to safety at the expense of the Euro. The dimmer the outlook the more the troubled economies have to struggle to keep away from default. Some analysts argue that this event threatens to spread globally, not only restricted to Europe but also to Japan, United Kingdom and United States. Whilst the problem was solely for Greece the event was very concerning and now that downgrade has spread to a second EU Member country – exacerbates the risk even further.

The Japanese Yen also benefited from increased risk aversion, which benefit usually quickly fades due to the fact that the movement in the currency is not due to holding the currency per se but because the Yen is heavily used to build up carry positions, and once these start to unwind the ‘real’ demand for the currency registers its proper levels.

Support for the British Pound keeps being limited by concerns of a hung parliament (with no political party having a majority of seats) as a poll cast by ComRes ltd on Tuesday showed no clear majority for none of the Conservatives, liberal Democrats, and Labour – which broadly speaking hold equal support levels. The implications of this are that a hung parliament will most likely cripple efforts to tackle the country’s debt. A hung parliament is the worst case scenario for the British pound. The weak BBA mortgage reading, and unchanged CBI retail activity did not help the British pound either.


Good Day.

Rudolf Muscat
Trading desk

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