Market Review – 15/05/2010 01:22GMT
Euro tanks on growth fears and breakup concern
The single currency penetrated last week’s 14-month low of 1.2510 in Europe yesterday and tumbled below 1.2400 for the first time since November 2008 on lingering worries that austerity plans required by the EU/IMF 750 billion euro bailout package would stifle an ‘already-weak’ recovery in the 16-nation eurozone.
Previous day’s comments by Former Fed Chairman Paul Volcker that he was concerned the euro area may break up while ECB’s Weber said dangers were still in the financial system and such risk should not be underestimated. German Chancellor Angela Merkel’s comments that Europe is in a ‘very, very serious situation’ continued to weigh on the euro throughout European and U.S. sessions.
Euro bashing pressured the single currency on Friday as the pair was sold on every intra-day rebound. Despite brief bounce to 1.2576 near European opening on short-covering, euro tumbled again and fell below 1.2510 to 1.2432 in European mid-day. Although euro managed a modest recovery, renewed selling at 1.2534 pushed the single currency lower again and price nose-dived to a fresh 18-month low of 1.2354 in NY afternoon. Cross-selling in euro also weighed on price as eur/jpy plunged from 117.02 to 113.50 while eur/gbp fell sharply from 0.8620 to 0.8496. In other news, report showed French President Nicolas Sarkozy once threatened to pull out of the euro during the negotiation which led to the aforementioned bailout. In addition, Greece would submit a deficit-cutting progress report to EU this coming Saturday.
Although the British pound fell sharply from 1.4640 to as low as 1.4496 in tandem with euro on Friday, cross buying in sterling versus the single currency somehow limited cable’s intra-day downside, the pound was more resilient than euro to selling pressure and gyrated inside aforesaid range in NY session as the market focus on Friday was euro instead of cable.
Versus the Japanese yen, yen rallied across the board as Greek debt crisis sparked major broad-based risk aversion again, prompting investors to dump riskier assets like commodity currencies, stocks, oil and other commodities for yen and dollar as safe haven currencies, gold fell $30 from fresh record high of $1248.80 to $1218.10. Aud/jpy tumbled from 83.41 to 81.42 while gbp/jpy fell from 136.05 to 133.24 and usd/jpy also slumped from 93.10 to 91.80.
European and U.S. bourses all suffered heavy losses on Friday, FTSE closed down 3.15%, DAX down 3.12%, CAC 40 down 4.59% whilst DJI closed down 1.51% and S&P 500 down 1.88%.
Economic data to be released next week include : U.K. Rightmove house prices, Japan Domestic CGPI, Japan Domestic CGPI, U.K. CBI industrial trend, U.S. Empire state mfg. and Net LT TIC flows and NAHB housing mrkt index on Monday, Japan Tertiary industry index, Consumer confidence, Machine tools orders, U.K. CPI, Germany ZEW index, EU Trade balance ,HICP, U.S. Building permits and PPI on Tuesday, Japan Capacity utilisation, Industrial production, Canada Wholesale sales, U.S. CPI and FOMC minutes on Wednesday, Japan GDP , Germany PPI, U.K. Retail sales, Canada Leading indicators and U.S. Leading indicators on Thursday, Japan Leading indicators, Germany GDP, PMI, EU PMI, Germany Ifo index, EU Current account, Canada CPI and Retail sales on Friday.