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

FX MARKET UPDATE: What To Watch This Week

 The G7 meeting, held in Iqaluit, Canada, over the weekend, left markets with little to chew on
 G7 officials maintained their commitment to stimulus measures and timely exit strategies
 The current environment remains conducive to more USD and JPY buying and selling of currencies such as the AUD, NZD, CAD, GBP, NOK, SEK, ZAR etc

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: Central Banks take centre stage

 Monetary Tightening in China and Greece’s debt woes have caused risk aversion to take a turn for the worse over the past fortnight
 There have been spikes in currency and equity market volatility and risk currencies have remained under pressure, including AUD, NZD, CAD and man emerging market currencies
 Greece’s problems remain a major burden on the EUR, with speculative sentiment for the currency dropping close to all time lows, as recorded by IMM data

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: Q4 earnings and Chinese data

 On balance the overall tone since the start of the year has been just about positive, with firmer economic data, most notably in China outweighing sovereign debt concerns in Greece and elsewhere
 With the markets gyrating between a “Risk on” and “Risk off” tone from the turn of the year, “Risk off” may be the tone at the start of this week, as US equities ended the week on a negative note ahead of the Martin Luther King holidays
 Bank earnings will be a key focus, with Citigroup, Morgan Stanley, BoA, Wells Fargo and Goldman Sachs set to report this week
 Given the growing influence of Chinese data on markets the monthly data pack from China will capture more attention than usual on Thursday
 Chinese GDP data is likely to reveal an acceleration in growth in Q4 YoY to above 10%
 In the Eurozone the main event is the German ZEW survey tomorrow, which is likely to show further signs of flagging, due to Greek concerns
 UK data kicked off on a positive note this week, with house prices rising 0.4% MoM in January and 4.1% YoY according to UK property website Rightmove, the biggest annual gain in over a year
 The data as well as expectations that Kraft will raise its bid for Cadbury will likely help GBP in addition to other GBP positive M&A news

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.

MARKET UPDATE: G3 Economies Show Modest Growth

 A few themes are already becoming evident into 2010. Firstly, the dominance of China and any news on the Chinese economy is becoming increasingly apparent, as reflected in the market reaction to trade data and hike in reserve requirements this week (see our post, China Tightens Monetary Policy)
 The second theme that is developing this year is the “risk on” environment for asset markets
 Another theme is the problems and concerns about sovereign debt and ratings, which will likely intensify further
 A final theme that could be added is the underperformance of the Eurozone economy, a theme that is likely to become more apparent as the year progresses
 Not to forget the US, their economy is showing more signs of life but even so, the improvements are “modest” as reflected in the Fed’s Beige Book

To view the full discussion, please click here to visit the original post on The Econometer website

MARKET UPDATE: China Tightens Monetary Policy

Before we discuss the changes in China’s Monetary policy, summarised in the latest blog by Mitul Kotecha, Head of Global Currency Strategy at Calyon, we thought it valuable to outline the differences in the way the People’s Bank of China (PBoC) operate monetary policy relative to major central banks in the West...

MARKET INSIGHT: Currency Markets; High yield / commodity currencies take the lead

The following is a summary of a recent article written by Hong Kong based Mitul Kotecha, Managing Director and Head of Global Currency Strategy at Calyon. Mitul has kindly agreed to share his expert currency market views with The Banker's Blog.

The article can be viewed in full on Mitul's website, The Econometer, by clicking here.

• Even though equity markets have fallen in recent sessions, the trading community continue to show an appetite to take risk onto their books
• As a result, high yielding and commodity currencies have emerged as winners in recent trading sessions, particularly AUD, CAD, NZD and NOK. Emerging market currencies have also risen
• Mitul backs a continuation of this trend and is in favour of backing long positions in the above currencies, particularly against JPY, which he expects to come under pressure as the year progresses