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FX Day Trading - 20 September 2011
Italy downgraded
Greece confident it is close to a deal
Nobody else is
S&P fired a shot across the bow of Italy last night, downgrading the country one notch to A/A1 and blaming political infighting for an ineffective reaction to its financial problems.
The bad news for Europe and its banks continued, with a report that Siemens recently withdrew more than €0.5 billion of cash deposits from an as-yet-unknown French bank, and transferred the funds to the ECB due to fears about the health of the bank.
In spread betting, lead by renewed fears of an imminent Greek default and the perceived inability and unwillingness of European politicians to do anything other than bicker, the US dollar, revelling in its invigorated safe-haven status, took around a cent off the pound and in the case of the euro, fell to an almost seven-month low.
Greece said it was close to a deal with the Troika ‡, but that confidence seems very one-sided as the IMF, ECB and EC were so frustrated with Greek failures that they didn’t even attend the meeting – instead opting for a conference call.
The US Federal Reserve is now expected to hold off QE3 and instead opt to repeat the 1961 exercise of selling short-term treasuries in order to finance the purchase of long-term bonds – dubbed ‘Operation Twist’ – which it hopes will hold down longer-term yields and thereby boost investment in the economy without further bloating its already extensive balance sheet.
In a speech yesterday, President Obama outlined a 'Robin Hood' tax, seemingly taking Warren Buffet up on his invitation to implement a new tax on millionaires. The UK has similar proposals coming from Comrade Cable, but it could be argued that this misses the point that the government has a spending, not a revenue, problem.
As expected the Bank of England’s Quarterly Bulletin suggested that the UK's QE policy was a considerable success, adding 1.5-2.0% to GDP (and up to 1.5% to CPI inflation). Whether correct or not, the financial spread betting market has interpreted this as part of a communiqué that more QE is on its way, which could be viewed as either GBP-negative or reassuring that the bank stands ready for action, depending on your side of the fence.
From a data perspective, yesterday passed with little other than a flickering interest. Eurozone construction output rebounded in July from the biggest drop in six months, advancing 1.4% from June and in the afternoon the US NAHB Housing Market index fell to 14 from 15.
Today offers far more to get your teeth into, with the closely watched German ZEW leading the morning interest and the important US Housing Starts in the afternoon session.
For the UK, we wait until Wednesday for a tranche of data including the all-important MPC minutes (and any clues about QE) and the Public Finances data.
‡ The Troika refers to the group consisting of the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF) that coordinated the financial bailouts of Greece, Ireland and Portugal.
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'Forex Spread Betting: Dollar Surges on Safe Haven Buying', Article by Moneycorp, last update: 20-Sep-11
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