Vantage FX | Euro under pressure from Spain and Greece | 6th November 2012

It was a cautious night with the Euro and European bourses coming under renewed pressure in European trade as concerns about Greece and its bailout combined with a rise in Spanish unemployment of 2.7% last month so that  4.8 million Spaniards are out of work. Equally a bit of US election uncertainty weighed slightly on the markets as well.

Firstly in Europe the struggles of Greek Prime Minister Antonis Samaras to win a vote to institute the next round of austerity and so secure more bailout funds combined with the Spanish unemployment news to drive German 2 year notes below zero for the first time in a couple of months dragging 10 year bunds lower as well. The Spanish bond auctions on Thursday bears watching particularly as they continue to drag their heals about asking for help with Spanish economic minister De Guindos saying overnight that Spain will make a decision on bailout when ready – So there!

In the US there seems to be two key concerns about the election. The first question is just how tight is the race – some put it at 50:50 but Nate Silver’s more granular approach says Obama will win easily. The second concern is of course about the impact on monetary and Fiscal Policy that would result in either side winning. Romney is seen as more austere, Obama less so but Obama is viewed as less friendly for the capital gains tax  regime. These concerns then of course combine with the fiscal cliff and we just have increased uncertainty.

Datawise overnight in the US the release of the ISM services index showed a slight easing in strength for the services sector as the index dropped back to 54.2 from 55.1 in September. Orders fell to 54.8 from 57.7 although the employment index rose.

Stocks

At the close European markets were lower as a result of the above. The FTSE fell 0.5%, the DAX dropped 0.51% and the CAC continues to be the manic depressive of the big markets falling 1.26%. Madrid was 1.87% lower.

In the US an hour before the close stocks are getting back into the black with the S&P 500 up 0.11% to 1415, the Dow is up 0.04% and the NASDAQ is up 0.47% as Apple has had a good day after news it sold 3 million of its mini iPads.

In Australia our SPI200 contract pushed below but reversed off support the previous day and closed just above the important support at 4425 we are watching. The Australian stock market is likely to head lower if this level gives way on a close basis.

FX Markets

The concerns in Europe and caution in markets helped the USD maintain its bid tone overnight with Euro breaking down through the bottom of the range at 1.2800 to make a low of 1.2765 before rallying a little to sit at 1.2786 as I write. As you can see in the chart below after a double top recently EUR has now broken below the range low of 1.2800, fallen and is closing below the 200 day moving average for the first time in 2 months. At the same time my medium term trend indicator when combined with the ADX suggests further downside for the EUR – support is 1.2740 then 1.2600.

Elsewhere GBP was under pressure from the weaker than expected UK services PMI and traded down to a low of 1.5956 after yesterday’s high of 1.6039 – it now sits at 1.5968. USDJPY couldn’t take out the highs of Friday trading up to 80.56 before falling back once more and it sits at 80.26 presently.

Today the RBA meets in Australia and I favour a cut of at least 25 basis points. Australia and the Australian economy needs a cut – but it will probably only help at the margin given household de-leveraging  and unless it is a shock 50 basis points it won’t impact the Australian Dollar in any material way. Indeed the AUD did really well in Asian trade yesterday and has held those gains overnight sitting at 1.0365 up 0.31% on the day in contrast to the EUR’s fall of 0.19% and the Pounds 0.32% drop.

If you are interested in the SIngapore dollar, indeed if you are interested in trend following, you might want to have a look at the USDSGD rate as it looks like it might be ready for a reversal of fortune. As yet there is little momentum in this move but it bears watching.

Commodities

The caution evident in stock and currency markets gave gold a little bit of a bid tone and lifted it from the 9 week lows from Friday’s close. Gold rose 0.48% to $1682 oz. Silver likewise rallied off recent lows closing at $30.97 up 0.9%. Crude also had as slighthly better day rising to $85.18 or 0.38%. Interesting price action in Crude with it dipping below Friday’s close in Asian trade before recovering helping the negative trend to lose a little momentum.

Datawise The RBA move today is clearly the most important number for the day but we also get data on the House Price Index in Australia. In Japan today we have the Leading and Coincident Indices and then tonight in Europe there is a raft of Services PMI’s before UK production data and German factory orders.

Thoughts, comments, queries together with frank and fearless feedback all welcome. I’m happy to answer questions or comments on the comment stream wherever I can

NB: Please note all references to rates above are approximate and should not be used for trade reference.