MARKET UPDATE: Tarnishing the Euro’s Good Name

 Market participants openly wondering whether recent fiscal troubles are the start of the end of the European project
 The EUR reacted positively to news that some form of support package is being considered (from France and Germany) but nothing concrete has appeared yet, leaving markets on edge

MARKET COMMENTARY: Currency Tensions Intensify Ahead of G7

 Portugal, Greece and Spain remain firmly in the spotlight but it may not be long before the light broadens to include UK, US and many other countries facing similar difficulties on the fiscal front
 In Portugal, parliament began to vote on a bill on financial transfers to the regions, which could damage the ability of the government to reduce the deficit
 In Greece tax collectors have started a 48-hour strike as social unrest worsens

MARKET COMMENTARY: Selling Risk Trades On Rallies

 A poor outturn for the US service sector (the ISM non-manufacturing index failed to match expectations, coming in at 50.5 in January versus consensus of 51.0) has weighed on markets. Reversed the boost to markets from the positive manufacturing purchasing managers (PMIs) indices earlier in the week
 However, Cisco Systems beat equity analyst expectations Meanwhile US ADP jobs data fell less than expected, resulting in a flat month for January
 Confidence is still shaky, with worries over Greek sovereign debt not abating and spreading to Portugal. Ratings downgrade fears remain

MARKET UPDATE: Risk Aversion Takes Hold of Markets

 Risk aversion has come back with a vengeance over the last 10 days driven by a host of concerns that continue to damage market sentiment
 USD and JPY remain the best currency plays against the background of rising risk aversion and both currencies look well supported
 Market concerns have not completely abated, although fears plaguing markets have receded, particularly on the US political front, with Obama’s State of the Union address, Geithner’s testimony on AIG and Bernanke’s reappointment all passing without too much incident

MARKET UPDATE: Optimism Dissipates for Global Recovery

 Optimism about strong recovery led by China – recall the fact that disappointment from the surprisingly weak US non-farm payrolls report in December was outweighed by strong Chinese trade data – has dissipated
 Instead of rejoicing at China’s robust GDP report last week, which revealed a 10.7% rise in the fourth quarter of 2009, worries over whether China would have to move more aggressively to tighten monetary policy dominated investor’s thoughts
 Further to this, US President Obama’s plan to limit the size and trading activities of financial institutions dealt another blow to financial stocks
 Meanwhile, rumblings about Greece continue to weigh on markets and Greek debt spreads continued to widen even as global bond markets rallied
 Obama’s announcement helped EUR/USD to avoid a break below 1.40, as there was a pullback in USD
 The AUD was also hit by news that Australia’s Henry Tax Review would look to tax miners in the country. As a result AUD/USD dropped below 0.90 though this level is likely to provide good buying levels for those wanted to take medium term AUD long positions
 The other G3 central bank to meet this week is the Bank of Japan but unless the Bank is seen to be serious about fighting deflation, USD/JPY may remain under downward pressure. USD/JPY, however, will find strong support around 88.84

These are the salient points kindly contributed by Mitul Kotecha, MD & Head of Global Currency Strategy at Calyon. To view the full discussion, please click here to visit the original post on his website The Econometer

MARKET UPDATE: The Euro comes under pressure

 The EUR continues to struggle both due to the direct and indirect impact of Greece’s fiscal problems
 Indirectly, the EUR dropped sharply following the release of the below consensus German ZEW survey
 Directly, concerns about the seriousness and/or ability of Greece to solve its problems are also weighing on the currency
 Officials at the Ecofin meeting of European finance ministers noted that Greece would not receive help from its neighbours but said its problems are a concern for all of the Eurozone
 The strength of the EUR was also discussed at the Ecofin meeting, with the EU’s Juncker stating that it should better represent European interests
 EUR/USD looks especially vulnerable below its 200-day moving average around 1.4298, the first time it has traded below the 200 day moving average since May 2009

These are the salient points kindly contributed by Mitul Kotecha, MD & Head of Global Currency Strategy at Calyon. To view the full discussion, please click here to visit the original post on his website The Econometer

MARKET UPDATE: A Greek Tradgedy

• Greece announces a three-year plan to reduce rising fiscal deficit. However this failed to convince the markets, as Greece’s 5-year CDS widened to 333bps whilst 10-year sovereign spreads widened further.
• The plan proposes to reduce the budget deficit from 12.7% to 2.8% of GDP by the end of 2012, which many view as unrealistic.
• Greece’s deficit is planned to be cut by 4% this year alone; a tall order given the likelihood that the economy will contract this year.