| ifcmarkets Intraday snapshot |
The single currency remains under the cosh, and the support line of a seven-week bear pennant at 1.4168 is under threat. A significant lower high at 1.4375 has been confirmed, and a push lower to 1.4122 and towards the 1.4015/24 projected target area is expected during the coming sessions. A recovery above 1.4227 would provide temporary respite, but only regaining ground above Monday's Asian session high at 1.4300 would give EUR a boost. |
| The setback off Friday's 1.6077 high has room for further weakness towards 1.5932. However, to put GBP bears back in control, a break below 1.5932 is required, exposing the important late June lows at 1.5911. Friday's bullish outside day has tempered the dominant bear threat, and a rally above 1.6077 would extend corrective GBP gains towards 1.6139, within a bearish continuation pattern. |
| The recovery off 80.50 stabilises Friday's sharp setback, and more corrective USD gains will look to extend towards 81.00. However, with significant resistance looming overhead at 81.20, Friday's high at 81.50 has become isolated. A break below 80.50 would maintain the dominant bear threat, exposing 80.26 and 80.01. |
| Remains rangebound between 1.0655 and 1.0791, and the lower end of the range is under threat. There is scope for a push lower towards 1.0615 and 1.0590, but AUD weakness is considered corrective in nature. A recovery above 1.0724 would open Monday's Asian session high at 1.0765, and leave the range ceiling at 1.0791 vulnerable. |
| The euro may have just become too expensive. For the last 18 months or so, the single currency has been able to weather the euro-zone debt crisis quite well. Although the currency has come under periodic selling pressure, it has always survived on the assumption European leaders would come to its rescue. At each stage of the debt negotiation game the core countries have finally coughed up, providing the funds to prevent the weak ones from going under and the euro to live another day. However, the cost for keeping the euro alive has just gone exponential. Fears that Italy will be the next casualty in the debt crisis puts the problem in a new and different league. Also, talk that European leaders may now allow Greece to default at least partially on its debts could well take the whole peripheral debt issue onto a different level. Let's look at the second problem first: On the surface, letting Greece off some of its debt repayments certainly makes sense. It is probably going to be the only way the country will be able to get out from underneath its mountain of debt and stage an economic recovery strong enough for it to eventually resume normal budget funding. But, what looks like sanity could well prove to be madness. If Greece is allowed to default, not only does this create problem for the country's creditor banks as well as for the credit rating agencies, which will have to define this as a so-called credit event, but every other Tom, Dick and Harry in the euro zone will simply want the same preferential treatment. E.U. leaders will just have given a signal to every profligate government that overspending is rewarded. And if the E.U. can't bail out Greece without allowing a default, what will they do about Italy? Before last week, the big fear was that contagion would spread to Spain. With outstanding debts of EUR654 billion, that was bad enough. But, the contagion has spread to a much bigger problem instead. With debts of EUR2 trillion, Italy is in a different league altogether. Little wander that Die Welt reported over the weekend that the European Central Bank is looking for a massive increase in the euro-zone rescue fund. Of course, that is just for dealing with the sovereign debt. There is also the problem of all the creditor banks and the bail outs they will need to remain solvent while they write off all these debts. Stress test results at the end of this week could well highlight just what is at risk. This rise in the cost of saving the euro comes just as the global economy takes another downward lurch and the recent optimism over some larger euro-zone economies themselves turns sour. So although E.U. leaders may be muddling through, hoping to keep the euro afloat, they might well find that their own electorates, who already doubt the future of the single currency, baulk when faced with an even bigger bill to save it. |
| Fears the euro-zone debt crisis is spiralling out of control put the euro under renewed pressure Monday as senior euro-zone officials prepared to meet to try to stem contagion to Italy and advance a new aid deal for Greece. The euro hit a fresh all time low against the Swiss franc and for the first time since June 16 the single currency fell below $1.41 against the dollar as contagion fears ratcheted up a notch because of concerns over the health of Italy's banking system ahead of bank stress test results due Friday. "Euro-zone politicians have clearly failed to draw a line under this crisis at every point. Now the stakes are Italy, this is potentially a catastrophe," said Jane Foley, a currency strategist at Rabobank in London. Worries of deepening contagion sent Italian and Spanish bonds yields to their widest levels since the inception of the common currency, while default insurance costs for Italy, Portugal, Ireland and Greece all hit record highs. "Markets' concern that the debt crisis is spreading to Italy is clearly growing," said Adam Cole, global head of foreign-exchange strategy at RBC Capital Markets in London. Adding to the negative tone Monday was a Financial Times report suggesting that euro-zone officials may allow Athens to default on some of its bonds. Against this backdrop, the 17-country currency fell against the dollar, pound and safe-haven Swiss franc and yen. "Inevitably it's a day of Swiss franc strength," said Rabobank's Foley. She added that the dollar doesn't look that appetizing either after President Barack Obama and congressional leaders failed to reach a deal at the weekend to cut the deficit and lift the nation's borrowing limit. |
| The euro fell against the dollar and yen on Monday in Asia due to worries over debt crisis contagion in Europe as investors speculate that senior European officials may accept a partial default of Greek debt later in the day. All eyes are on an emergency meeting of top European leaders called by European Council President Herman Van Rompuy for later in the global day following a Financial Times report on Sunday suggesting that the officials may allow Athens to default on some of its bonds. While the likelihood of such a decision is unclear, the calling of a meeting that appears to fit in with the speculation "is just a very bad scenario for the euro," said Kenichiro Ikezawa, a fund manager at Daiwa SB Investments. If the speculation turns out to be correct, concern will intensify that debt problems in Europe will get more severe and spread to other nations such as Italy, traders said. "Contagion, contagion, contagion. That's the word we're scared of right now," Ikezawa said. The European unit was at $1.4189 at 0450 GMT from $1.4265 in New York on Friday. Ikezawa said it may fall to $1.4000 later in the day. The euro was at Y114.61 from Y114.96. The dollar, meanwhile, was at Y80.77 from Y80.68 in New York and the ICE Dollar Index was at 75.431 from 75.110. Analysts said the greenback will start falling and it may reach Y80.00 in the near term as last week's disappointing U.S. non-farm payrolls data came as a big negative surprise. The view among investors that the world's largest economy may exit its soft-patch soon has diminished and it's possible that investors will again start talking about another quantitative easing program by the U.S. Federal Reserve, analysts said. |
| A disappointing U.S. employment report and growing worries that the euro-zone debt crisis could spread to larger member nations dragged the euro lower against all its major rivals on Friday. U.S. nonfarm payrolls rose a meager 18,000 in June, far below the 125,000 forecast by economists, shaking market confidence in global growth prospects. Meanwhile, concerns about the stability of larger euro-zone nations, especially Italy, amid the ongoing debt crisis grabbed traders' attention. "It's been a disappointing day in terms of news both for the dollar and the euro," said Vassili Serebriakov, foreign-exchange strategist at Wells Fargo. "On the European side of the equation, we've seen some deterioration in the bond market particularly." Concerns about Italian politics and how Italian banks will fare in stress-test results expected next week weighed heavily on local banks' stocks and on bonds. Yields on Italian 10-year bonds hit euro-era highs this week, while the cost of insuring Italian debt against default rose sharply Friday. The euro fell more than 1 cent on the day against the dollar, while sliding more than 1% against sterling. The common currency also dropped more than 1.5% against the Japanese yen and Swiss franc as investors fled to safer assets. Investors are still awaiting clarity on the structure of Greece's bailout package as well. "European policymakers are really behind," said Jens Nordvig, head of G-10 foreign-exchange strategy at Nomura Securities in New York. "The problem is, if they don't tackle the smaller countries, it will be very hard to tackle the larger countries." |
|
