MORNING BRIEFING: EURUSD downside still expected

[RTFX-Trading]

MORNING BRIEFING: EURUSD downside still expected

[B][I][U]What’s new:[/U][/I][/B]
Euro: Short Lived relief for the EURO
Euro Zone: EZ Central Banks buy government bonds
Japan: Government Officials say Japan needs “to take steps on fiscal discipline”
Yuan: China seems to be getting ready to let Yuan move more freely
United Kingdom: Talks for formation of government still on
[B][U][I]
Today:[/I][/U][/B]
[IMG]http://www.rtfx.com/images/news/CalE110510.gif[/IMG]


[B][I][U]Rates in Asia and Indices: [/U][/I][/B]
EURUSD: 1.2803 - 1.2678.
USDCHF: 1.1138 - 1.1075.
GBPUSD: 1.4874 - 1.4765.
EURJPY: 119.42 – 117.19.
USDJPY: 93.39 – 92.32.
DowJones: 10’785.14 +3.90%
NASDAQ: 2'374.67 +4.81%
S & P 500: 1'159.73 +4.40%
Nikkei: 10’461.42 -0.66%
Shanghai 2’702.50 +0.14%
Gold: $ 1'203.70
Crude Oil: $ 79.71

[B][I][U]Comments: [/U][/I][/B]

Despite the European Union’s strong first step, Euro seems to remain hesitant on the future. Taking parallels with the 700 bln the United States dedicated in the height of the 2007/2008 subprime crisis, which did seem to work – one must note that for the United States this was not just a promise, the money was actually put to work to stabilize the economy. This is where doubts start to weigh on the single currency; with such amounts coming from individual nations that are already stretched it seems that fiscal consolidation is being pushed to a far later stage. Not only that, nations that will actually look for assistance will have to adopt tight fiscal measures which might in turn jeopardize economic growth.

Japanese government officials warned that lessons should be learnt from Greece. Japan is the world’s most indebted industrialized nation, with debt forecasts of 200% of GDP for 2011. The country has so far relied on abundant domestic savings, and domestic investors to cover for all this public debt. Minister Sengoku warns that Japan needs “to take steps on fiscal discipline”.

Meanwhile in China, the Central Bank in its first quarter monetary report signals that the Country might be ready to let the Yuan move more freely, by adjusting the exchange rate with a reference to a basket of currencies. China has maintained a fixed peg to the US dollar since 2008. Inflation in china is up to 18-month highs for April, but as a whole it seems China has managed to maintain a healthy economy for the time being.

With EURUSD not managing to maintain a 1.3000 level and actually struggling to keep the 1.27 level it is very likely that the pair will keep to the downside. ECB is introducing non conventional measures at a time when other G10 central banks are starting to normalize policy, hence the US Dollar will most likely keep benefiting from being the investor’s Choice. First support for today lies at around 1.268, and the pair seems to have already tried to test this with a low for this morning of 1.2678.

Good day,


Rudolf Muscat

Trading desk

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