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European Markets Snap 3-Day Loss- Euro Strengthens
4/29/2010 05:30 am: EUR/$..1.3236 $/JPY..93.96 GBP/$..1.5220 $/CHF..1.0835 AUD/$..0.9264 $/CAD..1.0058
European Markets Snap 3-Day Loss- Euro Strengthens
Asia Pacific markets were mostly weaker across the board with Japan’s Nekkei 225 closed for holiday. US equities rebounded yesterday from the losses sustained on news of downgrades in sovereign credit ratings around Europe. Modest gains came on the heels of the Fed’s continued commitment to keeping rates exceptionally low for “an extended period.” The statement highlighted improvements in business and household spending, while also noting lags in employment and commercial real-estate. The news calmed nervous investors, after global equity bourses fell on fears regarding sovereign debt contagion. The dollar was softer early in European trade as risk appetite crept back into the markets on better than expected unemployment data from Germany, and strong business climate and confidence figures from the Eurozone. Commodity prices were stronger with gold sitting just under $1170 and crude oil rising to $83.81- off yesterday’s weekly low of $81.50.
The Greek Reality
The sovereign debt crisis in Greece has brought to light the deficiencies in the nation’s economy. With the cost of the proposed 3-year aid package estimated to be as much as 120 billion euros, questions arise as to how the country will cope with the unprecedented austerity measures needed to regain control of government spending. With no significant economic growth drivers, the nation’s deficit will continue to climb unless major social reforms are implemented. Although Greece has the support of the EU, there is uncertainty as to the resolve of the Greek people as protests continue to persist in response to recent cuts in deficit spending. As a part of the rescue plan, Greece will need to adopt even harsher austerity measures. The risk of contagion still remains very real after S&P lowered Spain’s rating only one day after downgrading both Portugal and Greece. With German Chancellor Angela Merkel now urging for a quick resolution to the debt crisis, it is likely there will be a package ready for Greece by sometime next week. The euro received a respite from the heavy sell off in recent days on renewed hopes that the IMF backed UE plan will be enacted in time for the May 19th deadline, when some 9 billion euros of Greek debt mature. Although profit taking could provide some support for the euro, the medium-long term outlook remains negative. The single currency held gains past the 1.32 figure with interim resistance seen at 1.3260, backed by 1.3280 and 1.33. Subsequent ceilings are eyed at 1.3340, followed by 1.3370 and the 1.34 handle. Support starts at the figure, with additional targets eyed at 1.3180, followed by 1.3130, 1.31, and 1.3020. Past the 1.30 figure, stronger demand rests at the long-term 100% Fibonacci extension taken from the Dec 18th 08′ and Nov 26th 09′ crests, at 1.2880.
Today at 8:30am in New York, the US reports on weekly jobless claims, with 445k initial claims expected. Continuing claims are also seen lower to 4.618 million from 4.646 million. At the same time, the Chicago fed national activity index is released, with the figure expected at -.20. European markets were firmer with US equity futures also pointing to a stronger open mid-day in London trade.
Published on Thu, Apr 29 2010, 22:21 GMT