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FX Day Trading - 12 December 2011
Continent isolated by Cameron veto
But no damage to sterling
Ratings agencies' verdicts awaited
Depending on their attachment to the competitors in the popular karaoke TV show X Factor, many Brits will have been delighted or disappointed at yesterday's result.
The curmudgeonly remainder will just be relieved that the media hullabaloo is over for another nine months. They should not be unfairly dismissive though. As the Daily Mail points out this morning, the small Irish band "make history as they become first group EVER to take home the crown". Wow!
If the X Factor is a gift to the red-tops, whoever wins, the exercise of Britain's EU veto on Thursday has been a gift of at least equal value to the broadsheets.
The prime minister was on a hiding to nothing whichever way he jumped. However, his action seems not to have diminished sterling in the eyes of the world's spread betting investors.
As near as makes no difference it is unchanged on the GBP/USD, the GBP/JPY and the GBP/EUR compared with its position when the discussions began on Thursday evening.
Against the Commonwealth dollars and the rand it is very slightly higher; there has not been the traditional rally that supports commodity-oriented currencies after each new solution to the European debt crisis.
This latest solution has risen without a trace; at least as far as the forex spread betting market is concerned. Investors can appreciate the benefit of sticking Eurozone members to the letter of the law as far as fiscal ratios are concerned.
Had they properly observed the Maastricht criteria of 1992 and the ironically-named Pact for Stability and Growth that reinforced them five years later, Euroland would not be in its current mess.
There are concerns with the enforcement process though. Countries who fail to toe the line will be subject to automatic fines. Implicit in the plan is that those who have borrowed too much will have to borrow more to pay the fines. That's going to work, isn't it?
It is possible that financial spread betting investors will hold their fire to see what the ratings agencies make of the new plan. Since the triple-A sub-prime mortgage fiasco the agencies have not been held in the highest esteem, either by financial markets or by governments.
But many investment funds decide what is, and what is not, an acceptable investment asset according to the credit ratings they bestow.
If the agencies downgrade Euroland sovereign risk, the implication is that investment managers would have to shuffle holdings to comply with their investment criteria.
That would mean more pain for government bonds and, in turn, more losses for the banks that would have to mark down the value of their bond holdings.
There was no significant economic data on Friday and there is none on today's list either.
Some meatier data is due later in the week, including UK employment and inflation, Euroland confidence and inflation and two central bank policy decisions.
The US Federal Open Market Committee tomorrow will probably not make a difference but there will be keen interest in what the Swiss National Bank has to say on Thursday; negative interest rates are a possibility.
In the meantime, let's see how the dust settles around these shiny new crisis-resolution measures.
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'Pound Spread Betting Market Higher as EU Leaders Agree on Fiscal Union', Article by Moneycorp, last update: 12-Dec-11
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