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FX Day Trading - 21 December 2011
Free money anyone?
ECB LTRO starts today
UK rating downgrade threat
A research paper published in Nature on Tuesday morning revealed that the Kepler space telescope had discovered two earth-like planets, Kepler-20 e and Kepler-20 f, orbiting a star 945 light years away. By the end of the day, Moody's had put both on warning for a downgrade of their credit ratings.
While they were at it, they put Britain on warning too. A downgrade is not imminent: Germany and France and the rest of the Eurozone are ahead in the queue.
Nevertheless, those - including the writer - who were chortling at the prospect of France losing its triple-A rating have wiped the smirk off their faces.
Moody's argument is that, whilst the current situation is stable, the UK has "a reduced ability to absorb further macro-economic or fiscal shock". Translation: if it all goes pear-shaped in Euroland, Britain might not be able to avoid being sucked down as well.
That news, together with an overnight fall in UK consumer confidence (yes, it did go up 24 hours earlier), could weigh on sterling this morning.
Across the Channel there is high excitement about the European Central Bank's provision of dirt-cheap three-year loans to any commercial bank that wants one. The facility begins today.
Banks can borrow as much as they want for three years at an interest rate of 1%. Ostensibly, the purpose of the Long Term Refinancing Operation (LTRO) is to avoid a credit crunch resulting from banks' reluctance to lend to one another.
However there is a suspicion, even an expectation, that banks will load up with three-year money at 1% and lob it into three-year Italian government bonds at 5% or whatever.
There are more than a few reasons why that strategy is not viable in the long run but that did not trouble financial spread trading investors yesterday. They bought Italian bonds, equities, commodity currencies, gold and oil and sold US dollars and yen.
Decision support for the shift to risk was provided by an improvement in German business sentiment, an unexpectedly positive reading from the CBI's distributive trades survey and stronger than expected numbers for US housing starts and building surveys.
The US housing numbers provoked a repeat of the counter-intuitive reaction in which good US economic statistics send the dollar lower because they improve investor confidence.
The dollar had taken a similar hit earlier in the day in response to the IFO survey of German business confidence.
Today's ecostat action begins with UK public sector borrowing and the Monetary Policy Committee minutes at half past nine. After lunch come Canadian retail sales, Euroland consumer confidence and US existing home sales.
At 10:15 the ECB will announce the allotment of the first LTRO round. Numbers anywhere between €300bn and €600bn are being bandied around.
The great unknown is how spread betting investors might react to a high or low number. On one hand, a big take-up could be seen as an encouraging sign that the ECB action will help settle the nervousness about Euroland sovereign debt.
On the other, it could get investors worrying why the banks are so desperate for cash.
Currency Trading and Spread Betting carry a high level of risk to your capital and you can lose more than your initial investment, they may not be suitable for all investors. Ensure you only speculate with money that you can afford to lose and that you fully understand the risks involved and seek independent financial advice where necessary.
The above content does not constitute investment advice, it is provided purely for information purposes and is delivered as a personal view of the writer. Neither the contributing company (or writer) nor Online-Spread-Betting.com accepts any responsibility for any use that may be made of the content.
'Spread Betting Markets Await ECBs Long Term Refinancing Operation', Article by Moneycorp, last update: 21-Dec-11
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