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FX Day Trading - 5 October 2011
Investors blow hot and cold on euro
Dexia rescue good
Italy downgrade bad
On Tuesday Tim Cook unveiled Apple's latest iPhone, the 4S. It looked remarkably similar to its predecessor and technophiles were underwhelmed.
The 16GB version will cost $199 and the 64GB phone will be offered at $399. Apple is hoping that its marketing power will be enough to persuade buyers to part with an extra 200 bucks for 46GB of storage memory.
Shares spread betting investors were not convinced and the share price of the world's most valuable company fell.
The iPhone 4S announcement was redolent of similar efforts by the EU to hawk the latest incarnation of the Greek bailout, which looks very similar to earlier versions. Investors remain unconvinced, especially following the German chancellor's dismissal of any possibility of a big-bang resolution for the southern debt crisis.
What did engender investor enthusiasm yesterday, however, was the announcement that the French and Belgian governments will give their full support to Dexia. The 15-year-old bank has already been rescued once, three years ago, but is still up to the gunwales with questionable government and municipal debt.*
Initial enthusiasm for the rescue has since been tempered by Moody's downgrade of Italian sovereign debt by three notches to A2.
Not only is the news intrinsically negative for the euro, it is also a reminder that Belgium could itself be at risk of a downgrade as a result of taking onto its books the busted bonds held by Dexia and who-knows-what-other banks in a similar position.
Nevertheless, the early positive reaction worked in the euro's favour through the London session, allowing it to start this morning in London nearly a cent firmer against the US dollar and the pound compared with Tuesday's opening levels.
Except against the euro, the British pound has not done a whole lot in the last 24 hours. It is virtually unchanged against the US dollar, the Japanese yen, the Swiss franc, the Canadian dollar and the Australian dollar.
Sterling bears used the excuse of a weaker-than-expected UK construction purchasing managers' index to lean on the pound. The PMI came in two and a half points lower at 50.1, well short of the 51.7 predicted by analysts and soft enough to keep alive the threat of further quantitative easing by the Bank of England.
The US dollar's failure to perform came partly from an unexpected -0.2% monthly fall for factory orders, partly as a result of comments by Federal Reserve Chairman Ben Bernanke, who told Congress that the economy was "close to faltering".
The dollar might redeem itself today if the US services sector PMI achieves the 52.7 forecast for it. At that level it would be well ahead of the opposition; the other predictions are 50.3 for Germany, 49.2 for Euroland and 50.6 for the UK.
Making up today's list of data are the finalised figures for UK and Eurozone gross domestic product in the second quarter and ADP's monthly employment change number.
The latter is not a fireproof predictor of Friday's official employment report but it does tend to move the FX spread betting market when it is adrift from forecast; the number pencilled in for today is an increase of 70-75k.
*The good news is that Dexia passed two EU stress tests in the last two years.
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'Shares Spread Betting: Apple Lower Following iPhone 4S Launch', Article by Moneycorp, last update: 5-Oct-11
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