Tuesday, February 9, 2010

Euro Higher on Greek Bailout Hopes but Markets Skeptical on Spain, Portugal

The Euro pushed higher against the US Dollar amid renewed hopes that a bail-out of Greece will be announced shortly, but rising costs of protection against default in Spain and Portugal reveal skepticism about a resolution of the larger southern European debt problem.

Key Overnight Developments

• UK Retail Sales Growth Worst in 15 Years in January, Says BRC
• RICS Survey Hints UK House Prices May Decline as Supply Swells
• Euro Rebounds Against US Dollar on Greece Bailout Speculation


Critical Levels


The Euro and the British Pound added as much as 0.5% and 0.4% respectively against the US Dollar as the safety-linked greenback was sold amid recovering risk appetite on news that European Central Bank President Jean-Claude Trichet cut short his trip to a central bankers’ summit in Australia, feeding speculation a bail-out of debt-ridden southern European economies is about to be announced. We remain short EURUSD at 1.4881 and GBPUSD at 1.5765.


Asia Session Highlights
UK Retail Sales fell -0.7% in January after adding 1.1% in the previous month according to the British Retail Consortium. BRC Director General Stephen Robertson called the outcome “an awful start to the year,” adding that the outcome amounted to “the worst January sales growth in the 15 years we’ve been running the survey.” The coldest start to the year since 1987 was cited as the reason for poor performance, with heavy snowfall keeping consumers away from shopping for all but the bare necessities. Most worryingly, Stephenson said that “customers are becoming cautious again in the face of economic and political uncertainty,” a worrying sign for the prospects of sustainable recovery in Europe’s third-largest economy.

Separately, a survey from the Royal Institution of Chartered Surveyors (RICS) showed that the number of polled real-estate agents reporting rising UK House Prices outnumbered those reporting declines by 32%, an improvement over the previous month’s 30% outcome but still below the latest peak at 35% recorded in November. However, stocks of unsold homes on agent’s books increased for the third month while the number of agreed-upon sales remained unchanged over the same period, suggesting that prices may decline as supply outstrips demand.


Euro Session: What to Expect

Germany’s Trade Balance surplus is expected to narrow to 15 billion euros in December from 17.4 billion in the previous month as exports decline -0.1%, marking the first decline in three months. Although one month of data is not enough to draw firm conclusions about the overall trend in cross-border sales, traders will nonetheless be keen to see the details of the report amid concerns that the rebound in overseas demand will fade along with global fiscal efforts. Separately, the final revision of the latest Consumer Price Index figures is expected to confirm the annual pace of inflation slowed to 0.8% in January, marking the first decline in four months.

The UK Trade Balance deficit is expected to shrink a bit to -6.7 billion points in December from -6.78 billion in the previous month. The outcome may be accounted for by a weaker currency considering the Pound fell 2.8% against the Euro in December - the largest decline in eight months – making British goods relatively cheaper (and thereby more attractive) in the UK’s largest export market.

On balance, risk sentiment is likely to remain the top catalyst for price action, with the developing debt crisis in Southern Europe being the issue du jour for the moment. News that Jean-Claude Trichet cut short his trip to a summit in Australia to return home for an ECB meeting has been feeding optimism about some kind of bail-out emerging in the near term, pushing up US equity index futures and weighing on the safety-linked US Dollar and Japanese Yen. Interestingly, while credit default swap prices for Greece backed off a bit, those for Spain and Portugal raced sharply higher. This hints that investors remain skeptical about a quick resolution of the larger southern European debt issue despite the possibility that the immediate fire in Greece will be put out in the near term, meaning firmer risk appetite may not prove lasting.


Source:dailyfx.com/

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