MORNING BRIEFING: Fear hits markets, risk aversion on the rise again

[RTFX-Trading]

MORNING BRIEFING:  Fear hits markets, risk aversion on the rise again

What’s new:
Euro Zone: EURUSD breaks the 1.3000 key support level
Euro Zone: Credit Default Swaps on the Rise for Greece, Portugal, Spain but also Ireland and Italy
US Dollar: Reaches yearly highs as markets rush for a ‘safe haven’
United States: Major stock indices hit by worst selloff in months on fear Greek crisis might spread
China: Chinese Advisers say Greece won’t derail Yuan reform


Today:



Rates in Asia and Indices:
EURUSD: 1.2999 - 1.2936.
USDCHF: 1.1073 - 1.1023.
GBPUSD: 1.5173 - 1.5106.
EURJPY: 123.38 – 122.51.
USDJPY: 94.98 – 94.54.
DowJones: 10’926.77 -2.02%
NASDAQ: 2'424.25 -2.98%
S & P 500: 1'173.60 -2.38%
Nikkei: closed  
Shanghai 2’802.24 -0.23%  
Gold: $ 1'168.00
Crude Oil: $ 85.35
 
Comments:

Market headlines are negative, major indices are down, Euro finds new yearly lows and the Dollar index reaches new highs – these are all signals that risk aversion is back, and investors return to pessimism.

The EURUSD pair reached lows of 1.2936 in early trading this morning, breaking a key support level at 1.300. Sell-off was exacerbated by investor’s fears of contagion to Portugal and Spain. The spreads on Spanish and Portuguese credit default swaps (CDS) rose to 210 bps & 350bps respectively; not only that even Irish and Italian CDS rose albeit by lower amounts.

Markets cannot seem to find anything that reassures them in the Greek aid concerns, rumors of more downgrades to Spain were denied by Fitch Ratings and Moody’s, concerns that Greek debt might still need to be restructured even after bailout money – were rejected by Lazard (hired by Greek authorities for financial advice) saying that debt restructuring is not being considered. Yet these reassurances were not enough, euro still has that sinking feeling and default risk is still being priced in by the markets.

The US Dollar took all the benefits from markets’ fears as it hit one year highs against a basket of six major currencies.

Pairs with interesting potential at the moment could be short EURNOK, and short EURGBP given EURUSD might be too busy, and both NOK and GBP seem to hold potential for appreciation.

Good Trading,


Rudolf Muscat
Trading desk

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