Mike Paterson’s daily Forex brief

In a conference call on Saturday EU ministers agreed to provide a life-line of up to €100 billion to Spain for its ailing banks with money allegedly to be funded by the ESM (European Stability Mechanism) and the EFSF (European Financial Stability Facility).

While the markets may breathe a small sigh of relief (apart from all those traders squeezed out of short-Euro positions) the deal asks more questions than it delivers solutions. The ESM has still yet to be ratified by Germany, whose parliament has previously said that it remains strongly against allowing the ESM to fund a direct bank bailout, while it’s questionable whether the EFSF has sufficient amounts in its coffers.

And how will this affect the sovereign debt rating of Spain? And what about the contagion effect on the rest of the Eurozone, not least of which Italy and Portugal? There has been much analysis recently on whether the Spanish problem is the same as the Greeks but far bigger, and it now looks like we are about to find out.

Suffice to say the Euro gapped higher when markets re-opened in Asia last night with EURUSD jumping over 100 tics from a NY close around 1.2520 to breach the strong resistance 1.2623 and then went on to squeeze out Euro-shorts all the up to 1.2669 which just happens to be the next major technical resistance.

But with traders squeezed out it was naturally time for a reality check and we’ve since been down to 1.2595 this morning and now seeing more two-way business. The jury is proverbially out and then some.

EURGBP gapped up to 0.8163 (GBPEUR down to 1.2249) but that too has dropped back and is currently trading around 0.8100 (1.2345) again, and the story is the same with EURJPY which jumped from 99.43 to 100.93 before falling back to 100.20 presently.

Overall the Pound is little changed but generally firmer and this morning GBPUSD is seeing a few buyers emerge in the dips.

Nothing in the way of data today so traders will be searching for clues from any rhetoric or new analysis. Seems to me that this latest bailout is a band-aid for a far bigger wound amidst a far more dangerous political as well as economic game.

Forex Update-The Economic Voice Limited

Forex Update-The Economic Voice Limited

Well done to Lewis Hamilton for his Montreal Grand Prix win and to Maria Sharapova for her career-Grand Slam winning success at Roland Garros while the men resume a rain affected match with Djokovic fighting back.

While in the UK us myopic, rose-tinted football fans will be out in force in front of a TV set this afternoon as we attempt to begin the Euro 2012 campaign with at least a draw against our old rivals France. Let’s hope we can at least keep up the suspense and thrill of being there until the last group game. Come on England!

And finally, also flying the flag last night was James Corden who won a Broadway Best Actor Tony for his performance in One Man Two Guvnors, also starring a great old mate of mine and many of us in the market, Fred Ridgeway, who now treads the boards rather than man the phones as an fx broker. A remarkable switch of career and you can read his full story in an article I am due to publish on these pages shortly.

Have a great week everyone.

Interbank Rates 08:48 BST

Currency Pair

Current

Overnight

High Low
EUR/USD 1.2614 1.2669 1.2516
GBP/USD 1.5556 1.5574 1.5465
EUR/GBP 0.8107 0.8163 0.8087
GBP/EUR 1.2331 1.2367 1.2249
GBP/CHF 1.4815 1.4854 1.4718
GBP/AUD 1.5583 1.5613 1.5497
EUR/CHF 1.2011 1.2023 1.2008
GBP/HKD 12.0605 12.0745 11.9900
EUR/HKD 9.7806 9.8579 9.6952
GBP/ZAR 12.8869 13.0005 12.8404
USD/JPY 79.55 79.73 79.39
GBP/CZK 31.3204 31.4950 30.9220

Today’s Data: BST

Nothing of note

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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