IFX Market Report for 11/07/2012

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    Bank of England Governor Mervyn King said the UK economy doesn’t show “great signs” of recovering from recession. King mentioned the impact of the pound’s appreciation on exports may further dent prospects for the UK economy.Despite King’s comments the pound managed to strengthen against the euro for a fifth day in a row as investors grow more cautious over the outcome of the German court hearing on the Eurozone bailout fund and a surge in UK manufacturing and industrial production in May.

    GBPEUR remained above the 1.26 mark opening at 1.2614 and closing off at around 1.2650. The gains continued overnight as GBPEUR hit a high of 1.2677 a level not seen since 2008 during the pound’s dramatic decline at the height of the credit crunch. Although showing signs of being over-bought, 1.2750 has become the big key level to watch out for if a close above 1.2685 is seen.

    GBPUSD opened the day at 1.5503 gaining slightly to reach a high of 1.5541 before dropping in the early afternoon to close the session under the 1.55. As GBPUSD continues to trade above the 1.5450 figure, we may see the pair track sideways ahead of the BoE Minutes due out next week, and the official statement should set the tone for the remainder of the month as market participants weigh the outlook for monetary policy. Any moves higher would find significant resistance at the 38.2% Fibonacci level of 1.5683.


    The euro remained under significant pressure in the aftermath of last week’s decision by the ECB to cut interest and deposit rates and reports from yesterday’s Eurozone Finance meeting suggested that Spain is still some way off agreeing terms of a recapitalization package. Spanish Prime Minister Rajoy has to produce a two year deal by the end of this month to receive the €100bn bailout for his troubled banking sector.

    EURUSD fell from a high of 1.2329 to a 2-year low of 1.2238, with the momentum of the declines and a lack of significant data to help prop up the euro, we could see further lows across the board. The next support level to watch is the June 2010 low of 1.2233 which with the current trend is just around the corner.

    The IMF have warned that even after successful financial reforms and austerity measures Italy may become the next Eurozone member to require bailout funds as government debt yields rise.
    This morning Consumer Price Index in Germany fell in June to its lowest annual rate in a year and a half showing inflation fell by 0.1% in June from May, and rose by only 1.7% on the year.

    Greek Finance Minister Yiannis Stournaras said yesterday Greece will not get fresh bailout money before September, and doesn’t expect to get more time to meet creditor-imposed fiscal targets until the country gets its austerity program back on track.

    Strong production data from Sweden has sent the Krona to a near 12-year high against the euro during European trading yesterday. EURSEK fell to as low as 8.5843 its weakest since December 2000 after Swedish industrial production data rose 3.5% in May, easily beating expectations of a 0.6% increase.

    China, the world’s second largest economy is predicted to report a slowdown in the second quarter when it releases Gross Domestic Product data on July 13. The country lowered interest rates on July 5 for the second time in a month to stimulate the economy.

    Australia’s dollar fell toward a one-week low after data showed imports rose less than forecast in China, the nation’s biggest trading partner. Australian government bonds were little changed, with the yield on benchmark 10-year debt at 3%.

    Daniel Fountain / 10.07.2012

    Editor, Hotel Designs


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