IFX Market Report for 26/06/2012

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    Sterling rose 0.4% to 1.2468, a near two-week high against the euro on Monday, as investors expected the ECB would have to ease policy if leaders failed to make significant progress in tackling the euro debt crisis at a summit this week.General sterling gains were limited as speculation that the BoE will vote to expand the £325bn pound asset purchase programme to boost growth at their July meeting has gathered pace after dovish minutes were published last week from the policy meeting held earlier in the month.

    Against the US dollar, sterling fell from around 1.5590 to 1.5538 as a solution to the Eurozone crisis looks bleak and speculation of further QE weigh on sterling causing investors to opt for the safe haven currencies.

    The UK and Eurozone saw a generally quiet day for data release and volatility was not as high as of recent.

    GBPEUR remains around 1.2470 this morning, firm support and resistance levels are in place at 1.2270 and 1.2578 on the upside. Trading is expected to stay within these levels unless significant external influences have a part to play.


    Peripheral Eurozone bond yields are at elevated levels, piling pressure on the ECB to intervene and bring down borrowing costs. European leaders will meet later this week, after the leaders of Germany, France, Italy and Spain agreed on a €130bn package to revive growth.

    The euro weakened around 0.55% against the dollar, falling from 1.2543 below the psychological barrier of 1.25, and settling around 1.2480. This came before Italy and Spain sell debt later today amid concern Europe’s fiscal crisis is infecting bigger economies, and as billionaire investor George Soros said the euro may dissolve if European Union leaders fail to tame the financial turmoil at a June 28-29 summit.

    Support for the euro was seen near the June 12 low around $1.2441 and strategists said a break below that level would open the door to a test of the June 1 two-year low of $1.2288.

    Greece may have to wait at least another five years before it can sell bonds to investors, according to financial institutions that trade debt with European governments. A new administration in Athens and signs that European Union leaders are willing to loosen Greek austerity measures failed to convince primary dealers that the country will be able to return to the market before its second bailout ends in the next three years.

    US government debt has gained 2.9% since March, while corporate bonds returned 1.9%, mortgages rose 1% municipal bonds increased 1.8%, according to Bank of America Merrill Lynch index data. The returns show that even after the Fed kept the economy growing for 11-straight quarters by buying $2.3trillion of assets and continuing to swap $667bn of short-term debt into longer-term securities through their Operation Twist program, bond investors expect the economy will remain sluggish.

    US New Home Sales for may saw a rise from 0.343m in April, to 0.369m. This was also above the consensus figure 0.346m, but did little to the market.

    Canada’s dollar dropped versus its US counterpart on concern European Union leaders meeting this week won’t succeed in staunching the region’s debt crisis, dimming the outlook for country’s that export commodities.

    German Consumer Confidence figures released this morning showed a slight pick-up in confidence, rising to 5.8 in June from 5.7 last month and beating expectations of 5.6.

    News just released this morning shows that ratings agency Moody’s have been on the warpath again and have slashed the ratings of 28 Spanish banks.

    Daniel Fountain / 25.06.2012

    Editor, Hotel Designs


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