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FX Day Trading - 10 November 2011
Italy under fire
Greek and Italian politicians flee
Important Italian bill auction this morning
Le Figaro newspaper has discovered plans for the construction of a decoy version of Paris to fool enemy bombers.
Situated around Maisons-Laffitte, 15 miles north of Notre Dame, construction began in 1918 and included replicas of notable structures such as the Arc de Triomphe and the factories of Saint-Denis. Coloured lighting was used to give the impression of moving trains and operating foundries.
Unfortunately, faux-Paris remained unfinished when the Kaiser mounted his air raid in September 1918.
Every newspaper in Europe has discovered plans for the creation of a fund to fool investors.
Situated in Brussels, 190 miles northeast of Paris, construction began in 2010 and included replicas of important support structures such as a Euroland-wide bailout kitty and strongly capitalised banks. Frequent meetings were held to give the impression of fiscal determination and political harmony.
Unfortunately, the faux European Stability Mechanism remained unfinished when the bond vigilantes mounted their bear raid in November 2011.
Only time will tell whether historians blame today's bloody situation in Euroland on George Papandreou, Silvio Berlusconi or the whole miserable lot of them. At the moment, though, the issue of blame is irrelevant.
Eurozone leaders now find themselves, collectively, in exactly the position they claim to have spent the last two years trying to avoid. Spread betting investors saw senior politicians in Greece and Italy scrambling to distance themselves from unpopular austerity measures instead of stepping up to the plate.
Clearing house LCH poured petrol on the flames when it increased the margin deposit on Italian bonds. Ten-year yields leapt a percentage point higher to well above the 7% that precipitated the rescues of Greece and Portugal.
Not surprisingly, the exodus from Italy dominated the FX spread betting market. The euro set off lower as London opened and did not catch its breath until teatime, by when it had lost two and a half US cents, nearly two yen and one cent against the pound.
The implicit threat to the global economy of an Italian implosion had an inescapably negative effect on "risky" assets. The Commonwealth dollars all went down and the safe-haven yen followed the US dollar higher. Equity prices took a bath with losses of around 2% in Europe and 3% in the States. Far East shares mirrored that trend this morning.
Italy will auction €5bn of one-year treasury bills at 10:00 (UK time) today. The success of that sale – in other words the yield demanded by investors – will be crucial to sentiment towards Italian debt and the euro itself.
The European Central Bank cannot help by bidding on its own behalf but it is not impossible to imagine it acting behind the scenes to soak up a chunk of the issue in the secondary market.
At a parochial level, the Bank of England's Monetary Policy Committee will decide this morning whether to add to the £275bn of asset purchases it has undertaken so far. If the Bank were to announce more purchases it would be negative for the pound.
The only other distractions from Euroland's woes today are US jobless claims and the American and Canadian trade balance.
Buyers of the euro should bear in mind that sterling is at its best level since March, two and a half cents above the one-year daily moving average.
Currency Trading and Spread Betting carry a high level of risk to your capital and you can lose more than your initial investment, they may not be suitable for all investors. Ensure you only speculate with money that you can afford to lose and that you fully understand the risks involved and seek independent financial advice where necessary.
The above content does not constitute investment advice, it is provided purely for information purposes and is delivered as a personal view of the writer. Neither the contributing company (or writer) nor Online-Spread-Betting.com accepts any responsibility for any use that may be made of the content.
'Euro Spread Betting Market Lower as Italian Bond Yields Climb Above 7 Percent', Article by Moneycorp, last update: 10-Nov-11
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