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Markets dive again as EU summit once again produces little of note

Markets dive again as EU summit once again produces little of note
May 24th, 2012
Author: Mike Paterson

Mike Paterson’s daily Forex brief

We’ve seen further falls in the Euro and stock markets as EU leaders, unsurprisingly, failed to come up with any real initiative to appease the dire situation now facing the Eurozone and related trading partners.

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German Chancellor Merkel stood firm on her aversion to Eurobonds as I predicted yesterday, but is rumoured to have signed off on an FDIC-like deposit insurance scheme for European banks. The FDIC charges banks a premium to insure deposits and the funds are set aside to protect against bank failures. When the premiums run dry, the US government makes up the difference. This appears to be a severe case of horse and stable door, or as one of my colleagues wrote yesterday, it seems like a bad idea to offer fire insurance to someone whose house is in flames.

As for Eurobonds, that too has always been a vastly inflated remedy idea given that it involves lending vast sums of money to countries like Greece and Spain who can’t pay it back, something they’ve been trying out for a while now.

So the Euro has once again come under pressure with EURUSD falling below very strong support at 1.2600 and taking out more long positions as it made rapid headway towards 1.2550. Talk on the interbank and prime brokerage markets yesterday is that we saw a record volume of turn-over on this pair as investors piled out of the Euro and emerging markets and into the Greenback.

Forex Update-The Economic Voice Limited

Forex Update-The Economic Voice Limited

EURGBP dipped below 0.8000 for a moment (GBPEUR up through 1.2500) but has since steadied as GBPUSD played catch up and fell to 1.5667, and EURJPY has also seen huge selling again breaching the huge 100 line and touching 99.71 at one point.

Overall the Pound has had a mixed time of it with GBPCHF holding above 1.4950 but GBPAUD topping out yet again above 1.6125 and falling back to 1.6050.This morning at 09.30 BST sees the second reading of Q1 UK GDP and mortgage approval data with ECB President Draghi and US Treasury Sec Geithner speaking this afternoon.

All in all I’d say we’ve got another ugly day ahead.

Interbank Rates 07:22 BST

Currency Pair

Current

Overnight

High Low
EUR/USD 1.2565 1.2599 1.2554
GBP/USD 1.5670 1.5702 1.5667
EUR/GBP 0.8022 0.8026 0.8008
GBP/EUR 1.2465 1.2489 1.2458
GBP/CHF 1.4971 1.4999 1.4962
GBP/AUD 1.6068 1.6131 1.6051
EUR/CHF 1.2009 1.2012 1.2008
GBP/HKD 12.1489 12.1737 12.1466
EUR/HKD 9.7465 9.7733 9.7258
GBP/ZAR 13.1593 13.2276 13.1003
USD/JPY 79.48 79.58 79.41
GBP/CZK 31.7814 31.8704 30.7156

Today’s Data: BST

09.30-UK – GDP / Mortgage Approvals / Business Investment / Index of Services

13.30-US- Durable Goods Orders / Weekly Jobless Claims

14.00-EU- ECB President Draghi speaks

20.00-US- Treasury Sec Geithner speaks

Agree or disagree? Then please leave a comment in the box below or contact me by e-mail.

Mike ‘Oscar’ Paterson has been in the Forex trenches for nearly three decades working as a senior Spot trader in London at UBS, Chief Dealer FX at the State Bank of Victoria and in charge of Spot CHF at Credit Suisse with a daily turnover in excess of $1.5 billion. Mike now works as an independent consultant providing a fully bespoke service to the corporate and private sectors in physical FX delivery as well as guiding those who wish to improve their currency trading. Mike also presents seminars and workshops and writes for a number of publications.
To contact Mike please call +0044 (0) 1732 700383 or email mike.paterson@economicvoice.com
The views expressed above are those of the author and should not be taken as investment advice. MSP Foreign Exchange Services will have no liability for, or to, any persons executing trades based on the content above.

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