The currency blog

The recent rally in the Euro is very surprising given the lack of any positive or even specific Euro related news over the past couple of days. Market sentiment about the single currency remains low (after a temporary blip last week) because a Greek default is looming ever larger and European policy makers are still arguing over the rules that they hope will make the Euro-zone stronger moving forward. In fact short positions (betting that the Euro will fall in value) hit record highs over the past couple of weeks, which suggests there recent rally is more about shorts covering their positions, leading to the price of the Euro rising forcing other shorts to cover, commonly known as a short squeeze. If, as is likely, this explains the recent uptick in the Euro we can expect Euro selling to resume once the squeeze runs out of steam. Data for the Euro-zone for the rest of the week is extremely light, with the ECB monthly report showing how much the ECB is lending to stricken banks is due Thursday along with French and Spanish bond auctions. Both auctions will be closely watched in light of the S&P downgrades on Friday.

Read the rest of this entry »

After markets closed last night, Standard and Poor’s the rating agency dealt a severe blow to the European bailout fund by downgrading its AAA status to AA+. The agency blamed the large number of guarantors that had lost their triple A crown and therefore the funds itself could not maintain the gold standard rating. Following the announcement, EU officials attempted to reassure markets that the funds will not change is ambitions to lend billions of Euros to struggling Eurozone states.

Read the rest of this entry »

A new shockwave filtered through the markets on Friday as the credit agency, Standard & Poor’s, downgraded France, stripping the European powerhouse of its prized AAA rating. The decision to remove this vital asset in keeping borrowing costs to a minimum left France with a AA+ rating, a judgment that will likely cost billions in higher repayment costs. S&P said “Europe’s austerity and budget discipline alone were not sufficient to fight the debt crisis and may become self-defeating”. Alongside France, S&P cut the rating of Italy, Spain, Cyprus, Portugal, Austria, Slovakia, Slovenia and Malta though it was expected that these countries would have their ratings lowered. Overall, the picture isn’t looking good for Europe and with further downgrades likely over the next few months, it will be important to see how the ECB reacts in keeping this ongoing debt crisis under control. Read the rest of this entry »

Mr Market continues to be driven almost exclusively by extreme changes in sentiment on a day to day basis. The recent Euro rally stems from the positive outcome of Spanish and Italian bond auctions yesterday. Both countries we able to place the bonds at considerably lower rates than in recent auctions lifting sentiment and the Euro throughout yesterday and into this mornings trading. Worryingly data just out showed Spanish Banks borrowing almost €140bn from the ECB in December, almost the record high set back in July 2011 and this tugged sentiment back in the negative direction. Read the rest of this entry »

Europe will remain under the spot light over the next couple of days with the European Central Bank (ECB) meeting today, alongside debt auctions in Spain and Italy. The speculative market is predominantly short EUR while policy makers, specifically German Chancellor Merkel and French President Sarkozy are making the right noises; it appears the penny has dropped for Eurozone officials that it is not only about austerity but also about growth and reform. Read the rest of this entry »

The volatility that ended 2011 has yet to return the markets with Sterling, Euro and the US Dollar all remaining relatively stable against each other. This may start to change with tomorrow’s central bank interest rates announcements. Both the Bank of England and European Central Bank are expected to keep rates unchanged at 0.5% and 1% respectively, but the press conference with the newly appointed chief of the ECB, Mario Draghi will be closely monitored. Any comments about the economic conditions and the ongoing debt crisis in the Eurozone will have a large impact on where the markets move next so no pressure Mr Draghi!

Read the rest of this entry »