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FX Day Trading - 13 December 2011
After due consideration…
Investors don't like the latest euro rescue plan
They prefer the pound
The Higgs boson is a massive particle predicted in 1964 by the Standard Model of particle physics. It is argued to be necessary for the formation of matter.
Until now it has been impossible to identify the Higgs but recent research suggest there is evidence for its existence. If that turns out to be true, the future of the Higgs will be much more than hypothetical.
The euro is a massive currency predicted in 1957 by the Treaty of Rome. It is argued to be necessary for the creation of a federated Europe. Until now the euro has been almost ubiquitous in continental Europe but recent research suggests there is evidence for its demise. If that turns out to be true, the future of the euro will be no more than hypothetical.
Whatever the possible benefits of the Higgs boson to mankind, the investment world is far more exercised by the harm that could arise from further economic decay in Euroland.
Having given a couple of days' thought to the subject, spread betting account holders are apparently not convinced by Germany's offer to whip fiscally recalcitrant member nations into compliance at some unspecified point in the future.
Nor are they persuaded that a €200bn donation to the IMF will serve to support the market value of Eurozone government bonds, especially after the Bundesbank reiterated what the European Central Bank president said last week: To route support through the IMF would be just as illegitimate as to buy direct.
Italy's auction of treasury bills yesterday went tolerably well, insofar as there were buyers for the full €7bn offered. The catch was that those buyers demanded a 6.13% return (US treasury bills return 0.08%, UK treasuries 0.36%, Germany's 0.08%).
And Italy might need to borrow even more on behalf of its commercial banks. The European Banking Authority has ordered Euroland banks to raise, collectively, €154bn of new capital within six months.
Nearly three quarters of that money is needed by Spanish, Greek, Italian and Portuguese banks. They will find it near-impossible to raise that money in the commercial market so they will be knocking on the doors of their governments for a handout.
Whether to support sovereign bonds, finance new bailouts, recapitalise banks or prevent private investors taking a write-down "haircut" on their bond holdings, one way or another the Eurozone is going to have to print money.
It might not be easy to predict which of those needs will crop up first, or when, but it is nigh on impossible to imagine the EU dodging every bullet.
Investors probably bore that in mind yesterday when they decided to reward sterling for its detachment from the situation. It strengthened against every currency, including the US dollar and the yen.
The GBP/EUR jumped more than a cent to its highest level since March. Quixotic or not, the Prime Minister's gauntlet-throwing in Brussels on Friday morning seems to have won the respect of the spread betting markets.
Sterling ought not to have any great problem with this morning's UK CPI figures, which could bring another slowdown for inflation but would not affect interest rates.
ZEW's survey of German and Euroland economic sentiment will do well if it does not show further deterioration.
US retail sales will probably deliver another upbeat view of America's economy but the Federal Reserve's policy meeting this evening will ignore the signal.
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'GBP/EUR Spreads Jump Higher as Britain Opts Out of Fiscal Union', Article by Moneycorp, last update: 13-Dec-11
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