Another day, another headache for the euro zone, as Cyprus becomes the latest country to join the bailout club and there are more ratings downgrades for Spanish banks...
There was a hat-trick of bad news for the euro zone yesterday, as Moody’s downgraded 28 Spanish banks, due to growing concerns about their exposure to the Spanish housing market. Cyprus has become the latest country to request an EU bailout which could be up to €10bn as they struggle to capitalise their banks due to exposure to Greece, and finally the Greece Finance minister resigned after just 4 days which doesn’t bode well for the new government. Despite all this bad news the Euro has been fairly resilient, not losing too much ground against the pound or dollar on the back of this. This is a clear indication of how much weakness is already priced in to the single currency at present. The rate for EUR-USD is still hovering around the $1.25 level, with support at $1.2430 and any rallies expected to be limited to $1.2620. |
The pound has had a surprising rally against the dollar yesterday, to be trading around the $1.56 area this morning in spite of equity markets suffering substantial losses. We still do not expect the rate to deal much lower than $1.55 or higher than $1.5750 in the short term after talking to some senior traders before the weekend. The risk weighing over the pound at present is the prospect of the Bank of England increasing their Asset purchase scheme next week, with Mervyn King and other members of the MPC speaking in front of the Treasury Select Committee today traders will be watching closely as to any clues as to next week’s decision
Sterling is still very much stuck in a very narrow trading range versus the Euro, and has now dealt between €1.2250 and €1.2550 since the big move higher two months ago. After falling to bottom end of that channel last week the price has started to move towards the higher end as the single currency has been hit over the past few days. The rate has moved above €1.2450 in London today, but is still struggling to make a break above €1.25, with many dealers expect the top of this market to be around that level. There is now short term support the €1.23 area which has already proved a tough nut to crack on a few occasions.