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FX Day Trading - 14 November 2011
Technocrats to the fore in southern Euroland
Investors like the idea
At least for now
As often discussed, austerity means different things to different people.
The organisers of the London Olympics have cut security costs by ordering only 10,000 high-visibility jackets instead of the 21,000 that US experts think they will need.
The "occupy" movement has decided that capitalist targets are an extravagance; they don't need a stock exchange, any big church will do. So 17 protesters have set up camp outside Exeter cathedral.
In Greece and Italy economists have been co-opted to run the government on the assumption that they cannot make more of a hash of it than their elected predecessors. The fear in Athens and Rome is that one of their first economies will be to turn off the light at the end of the tunnel.
For the moment though, financial spread betting markets are optimistic that the new technocracy will be preferable to the oligarchy and kleptocracy that went before.
On Friday investors got a taste of Euroland's brighter future when Lucas Papademos took over in Greece. They reacted positively, sending the EUR/USD spreads a cent higher. The market had to wait until yesterday for confirmation that Silvio Berlusconi had done the decent thing and that Mario Monti would take his place.
It was investors in the Far East this morning who had the first opportunity to react. Predictably, their initial thought was to take the euro north but they quickly curbed their enthusiasm. Sig. Monti's appointment was not, after all, a great surprise. It had been discussed in depth on Friday and had largely been built into the price.
Since Friday morning the risk-appetite of investors has swung in the direction it always does when a new solution to the southern Euroland debt crisis is wheeled out. The dollar and the yen went down while the commodity currencies went up. The only surprise was that sterling did as well as it did. Instead of following the dollar lower it tagged along with the euro.
Although the UK producer price data were interesting it was not they who protected the pound.
Spread betting investors did not know quite what to make of them. Input prices - manufacturers' costs - fell by -0.8% in October, hauling the annual rate of increase down from 17.7% to 14.1%. Output prices - factory gate prices - were unchanged on the month and the annual rise fell from 6.3% to 5.7%. All the numbers were lower than forecast.
Friday's only other notable statistic was the provisional University of Michigan index of consumer sentiment. It was much stronger than expected at 64.2. Once again a punchy US ecostat worked against the dollar. It was already on its way down because of the news from Athens and the improved confidence figure helped it on its way.
There has been further positive economic news this morning with strong retail sales in New Zealand and a return to growth for Japan's economy in the third quarter. Yet to come are Swiss producer and import prices and US industrial production.
That leaves virtually the whole day free to dwell on how the appointment of m/s Papademos and Monti will revive Euroland's fortunes. From memory, these honeymoons tend to last about three and a half days.
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'EUR/USD Spreads Rise on Appointment of New Greek PM', Article by Moneycorp, last update: 14-Nov-11
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