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FX Day Trading - 6 December 2011
Euroland on notice for credit downgrade
Merkozy outline fiscal reform plan
UK tops the services PMI table
The Turner Prize is awarded annually to the work of art most likely to generate controversy and derision.
Past winners have included an unmade bed, a dead fish, a pile of bricks and a cheese sandwich. This year's prize winner, announced yesterday, is a rubbish bin. The bin would hold €45 million in €500 notes; nowhere near big enough then.
But wait, it might not be necessary to dump the euro. Chancellor Merkel and President Sarkozy have agreed on a plan of salvation which they will lay in front of the other 25 EU leaders later this week.
It will involve strict observance of fiscal rules and penalties for non-compliance. The task of auditing individual countries will be handled centrally by the EU in Brussels, the same body that has had its financial accounts rejected in every one of the last 17 years; no danger of bungling or fudge there then.
Judging by the euro's reaction, FX spread betting investors were less than captivated by the Merkozy vision. The currency perked up initially when the two leaders outlined the scheme at a Paris press conference but was already on its way lower by the time they had finished their presentation.
Spread betting investors have yet to be convinced that reform of Eurozone fiscal policy in the future, laudable though it may be, is enough to hold things together in the short term.
Standard & Poor's fed those doubts later in the day when, in a tour de force of malignant timing, it said it had put 15 of the 17 Eurozone countries on "creditwatch" for a possible downgrade. The two omissions were Cyprus, which is already on notice, and Greece, where a further downgrade would be futile.
Germany and France were on the list though. Investors in New York responded to the news by selling the euro, taking the EUR/USD half a cent lower, and a similar reaction in the Far East this morning has knocked a further half cent off the euro’s value.
The other currency taking a hit this morning was the Australian dollar. It is a cent lower against sterling following the Reserve Bank of Australia's decision to cut its benchmark Cash Rate for the second month in succession. The RBA's press statement included nothing to contradict expectations that there are more cuts to come.
The services sector purchasing managers' indices (PMI) which came out yesterday painted no overall clear picture. Britain, Germany and the United States all managed to remain in the growth zone above 50 but only the UK figure exceeded expectations, topping the table at 52.1. Although Euroland's reading improved by a point, it still looked soggy at 47.5.
Coming up later today from Europe are Swiss inflation, German factory orders and the revision to Euroland's gross domestic product in the third quarter.
Canada releases the Ivey PMI and October's building permits. At two o'clock the Bank of Canada announces the result of its policy meeting; probably a decision to keep the target rate at 1%. There is nothing from the UK or US.
Yesterday's developments probably mean another difficult day for the euro. That would improve the fortunes of sterling/euro but weigh on Cable.
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'EUR/USD Spreads Lower as S&P Puts Eurozone on Negative Watch', Article by Moneycorp, last update: 6-Dec-11
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