Euro uncertainty is expected to continue this week |
The euro’s recovery from two-year lows on Monday could be short-lived, as other factors continue to weigh heavily on the single currency. |
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Mike Jones
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The euro’s recovery from two-year lows on Monday could be short-lived, as other factors continue to weigh heavily on the single currency.
The euro was boosted by fresh opinion polls which showed that more Greeks could be tempted to vote for parties that favour sticking with the country's international bailout deal during next month’s election.
But the vast majority of investors remain pessimistic over how long the rebound would last, with concerns growing about the lack of growth in Europe, the fragile state of the banks in Spain and increasing borrowing costs for peripheral eurozone nations.
UKForex Commentary:
Euro:
A corrective short covering move took EUR/USD to highs of 1.2620 yesterday (Monday) but the relief was short lived as the recently inflamed concerns surrounding the state of both Spanish banks and her autonomous regions sent the nation’s 10-year borrowing costs close to 6.5%, fuelling inevitable concerns that the Eurozone’s fourth largest economy may soon be forced to request a bailout. Sentiment towards Spain was weakened further on the day as news emerged that the cost of the Bankia bailout will amount to EUR 23.5 billion versus original estimates of around EUR 19 billion. German debt remained a key beneficiary of the flight into safer assets as the yield on the German 10-year fell to 1.37%, leaving the yield premium on Spain’s securities over Germany’s to rise to a euro-era high of over 5%. GBP/EUR traded to a mid-afternoon high of 1.2524 from a start close to 1.2440 on Monday as safe-haven flows continued to benefit the UK currency. We have no market moving data out of Europe today and so with little chance of much positive news coming out of the currency union we expect the downside bias in the EUR to continue today and there will be close attention paid to the Italian bond auction later this morning. GBP/EUR opens this morning at 1.2503.
United States Dollar:
The FX market was pretty quiet yesterday with most US traders away from their desks in observance of the Memorial Day holiday. The USD retained a mildly safe-haven bid as concerns surrounding the solvency of the Spanish banking system remained in focus and speculation continued surrounding the possible permutations of next month’s Greek elections. GBP/USD traded in a tight 1.5671/1.5707 range on Monday, but with nothing in the way of economic data from the UK and the US on the day cable was never going to move too strongly against the cautious tone of the market. The most recent addition to the Bank of England Monetary Policy Committee, Ben Broadbent, was on the wires yesterday and his tone echoed that of the central bank’s Governor as he argued that ongoing events in Europe would be the biggest consideration for policy makers in the UK. We have US consumer confidence numbers out later today but this release is unlikely to provide any substantial distraction from events in Europe. From a technical perspective GBP/USD has found decent support around 1.5645 which is a key technical level between the lows and highs of 2012 at 1.5240 and 1.6305 respectively, but with Europe likely to remain the dominant driver of financial markets today we expect that safe-haven flows into the USD will continue to make life hard for cable. GBP/USD opens this morning at 1.5712.
Aussie and Kiwi Dollars:
A stabilization in global equities and commodities lead to gains in both the AUD and NZD on Monday with both higher yielding currencies continuing to make up recent lost ground against the USD. That being said both AUD/USD and NZD/USD traded in tight ranges on account of the US bank holiday. GBP/AUD ended the day with almost no net change after the pair bounced from its mid-morning low of 1.5875 to end the day at 1.5925 and similar price action was observed in the GBP/NZD cross which finished the day just over 2.0600 having touched a 2-week low of 2.0532 during the morning session. Overnight both of the commodity currencies have come under some selling pressure on the back of risk averse trading and subsequently both of the GBP/antipodean crosses open with a bid tone. GBP/AUD and GBP/NZD open this morning at 1.5909 and 2.0607 respectively.
For more information, visit: http://www.propertyoverseastoday.com/news_features/euro-uncertainty-is-expected-to-continue-this-week
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