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FX Day Trading - 26 October 2011
It will all come together on Wednesday
Well, something like that
Expectations muted for today's announcement
A "special purpose entity" (SPE) or "special purpose vehicle" is a firm set up to securitise debt and sell it on, thereby separating the liability from the parent, which remains at arm's length.
Its applications include tax evasion (Enron), the concealment of government debt (Greece and Britain) and palming off dodgy loans (sub-prime mortgages). Whilst SPEs are not inevitably crooked they do have an unfortunate association with crookery.
Given that history it is surprising, even insensitive, that the EU wants to use an SPE as part of its plan to fund the European Financial Stability Facility (EFSF). Odder still is Brussels' decision to refer to it as a "special purpose investment vehicle". A SPIV. They are obviously not trying to appeal to British investors.
Even more unfortunately for Brussels, it looks as though today's huge and much-trumpeted announcement of an all-encompassing solution to the southern Europe debt crisis might not be so huge after all.
For EU leaders to reach an agreement in two weeks that they had been unable to reach in two years was always going to be a big ask, so spread betting investors can hardly be astonished at the development. There is bound to be disappointment though, and what matters in the next 24 hours is just how deep that disappointment will turn out to be.
The tone on Tuesday was only moderately negative for the euro. It appeared to have no problem keeping in touch with the US dollar and the yen, and was even able to make upward progress against the commodity dollars. The pound fared better still, adding half a yen, half a US cent and a little less than that against the euro.
Also in FX spread betting news, the Commonwealth dollars made every other currency's life easier by variously coming a cropper. With the Kiwi it was the low inflation figure earlier in the day that had set the negative tone.
The Australian dollar suffered a similar fate for a similar reason this morning. It lost a full cent after third-quarter inflation figures that increased the likelihood of an interest rate cut.
For the Canadian dollar, which had touched parity with the US dollar at lunchtime, the stumbling block was a downgrade of the Bank of Canada's growth forecast.
Tuesday's economic data made little difference: consumer confidence in Germany was slightly up while in America it was much weaker, down from 46.4 to 39.8. The 0.5% rise in Canadian retail sales was overshadowed by the BoC's deeper gloom. US house prices went down by 3.8% in the year to August, to nobody's surprise.
Today we see UK industrial orders and US durable goods orders and new home sales. They are followed tonight by the Reserve Bank of New Zealand's interest rate announcement, which will almost certainly involve keeping the official cash rate at 2.5%.
Which leaves us with the EU crisis summit meeting. They say those who expect nothing cannot be disappointed. Let's hope they are right.
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'New Zealand Dollar Spread Betting Market Lower on Inflation Data', Article by Moneycorp, last update: 26-Oct-11
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