Investors are is in a real dilemma as to which is worse Europe or the US and with decision swinging sharply between the two extremes, traders are adopting a very short-term trading strategy. The simple question remains, Does a country that prints more and more Dollar bills until they almost become meaningless licence a worse investment assessment than a region with an overly rigid monetary framework, kept afloat only by German industry and with a fondness for throwing extraordinary amounts of money at lost causes? It looks as though the US will be the one to emerge from the current mess on a positive tack, although this progress might take some time yet. Meanwhile, the positive interest rate differential in the Euro’s favour will keep hot investment money in the single currency and, in line with ongoing diversification of reserves, will ensure a tightly ranged spot market. Good volatility between the technical levels but little chance of a major break either way – until after the summer anyway.
During Asian trading it was the Euro that lost ground having failed to break up through the 1.4500 top-side versus the US Dollar. This time, the catalyst was again Greece and the comments from Eurozone Finance Ministers following their abortive emergency meeting yesterday afternoon. The idea was to debate the concept of the German sponsored plan that would result in the extension of the maturities of existing Greek debt via the involvement of the private sector. This strategy was still being discussed despite the high profile opposition to the plan from the European Central Bank. The meeting failed to reach agreement however with members baulking at the additional Euro 20 billion cost to countries, as detailed in a briefing document circulated by the European Commission. The resulting break up of the meeting and cancellation of the scheduled press conference was viewed very negatively. All we had to go on were comments from the Luxembourg Fin Minister, Luc Frieden, who mused that it was extremely unlikely that anything tangible will be achieved by the end of the month and talks will probably drag on well into July. The Euro slipped and negative sentiment was supported on news that Moody’s had placed 3 of France’s largest banks on review for a possible rating downgrade on the danger posed by a possible Greek debt default. Expect a ramping up of Eurozone official comment in support of all things Greek, especially given today’s government vote in Athens to pass the latest batch of austerity measures. Bond spreads (between Bunds and the periphery) remain at heightened levels with the danger of a further widening, in turn keeping the Euro under pressure.
Post yesterday’s unsurprisingly high UK inflation rate there was a boost for UK PLC with the Nationwide consumer confidence survey reporting its largest monthly rise since November 2005. Compared to April’s outcome of 44, May reported a figure of 55 although before we all become too euphoric, a major reason for the improvement is deemed to be the feel good factor that engulfed the nation on and around the occasion of the Royal Wedding. Sterling picked up against the weaker Euro but dipped versus the ‘back in favour’ US Dollar. So far today we had UK May jobless claims +19k worse than median forecast of +7k biggest rise since July 2009, Claimant count rate 4.6% in May, as expected and ILO jobless down 88,000 in 3 months to April, rate 7.7% as expected. Cable dropped almost a cent pre-figures and now sits 1.6293 and against the Euro 1.1378.
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