Mike Paterson’s daily Forex brief
Yesterday saw another wave of doom and gloom across the markets on a hat-trick of events after bad US data, the realisation that the Fed had not done enough the day before and the downgrading of 15 banks by ratings agency Moody’s.
US existing house sales fell 1.5% in May, the Philly Fed survey tumbled to –16.6 from –5.8 and US PMI also fell to 52.9 in June from 54 in May. That all helped put the skids under the market as we waited to see what Moody’s were rumoured to be announcing after the NY close.
As it turned out, they downgraded 15 of the world’s top banks including Bank of America, Citigroup, RBS, Barclays and HSBC. Lloyds were also cut in a separate announcement. The other institutions that have been downgraded are Goldman Sachs, Morgan Stanley, JP Morgan Chase, Credit Suisse (down 3 notches), UBS, BNP Paribas, Credit Agricole, Societe Generale, Deutsche Bank and Royal Bank of Canada.
Moody's added that it was putting some of the banks on a negative outlook, which is a warning that they could be downgraded again in the future justifying it by saying governments around the world had shown a "clear intent" to reduce their support for banks going forward. So much for the UK’s Â£100 billion cheap borrowing facility made amidst blazing trumpets last week.
Anyhow investors and traders ran for cover and we’ve seen EURUSD down to key support around 1.2520, GBPUSD hitting lows of 1.5584 and AUDUSD back down to 1.0007. Yep, bad US data doesn’t necessarily mean a sell-off in the US $ in these strange days. It just exacerbates the weaknesses elsewhere.
EURGBP has also had another look at recent lows around 0.8020 (GBPEUR up to 1.2465), USDJPY rose sharply again to 80.53 while Gold and equities were also given a slap.
There seems little on the horizon to bring any cheer as focus now leans toward the EU summit at the end of the next week with Italian PM Monti warning they “have a week to save the Eurozone.”
Little in the way of data today but German IFO business sentiment index just out was lower than expected. All in all not a brilliant way to end the week and there will doubtless be more to come before the day is out.
At Ascot, Frankie Dettori proved he can still ride a big winner as Colour Vision wins the Gold Cup, the Aussies have a winning start to their warm-up games ahead of the ODI series starting next Friday, and there’s the little matter of a football match going on Sunday night versus Italy. Come on England!!!!!
Have a great week-end.
Interbank Rates 08:45 BST
Today’s Data: BST
09.30-EU- German IFO Index / German Business Expectations
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