Euro weakens after Spain inspired rally
Australian business confidence falls
FX Market Overview
When the Spanish Prime Minister hailed borrowing €100 billion as a victory, he appears to have been the only one celebrating. Not only did he annoy the German government who have to sell this deal to the German public as a good venture which will stabilise the Eurozone but market participants of all colours are much less enamoured with the Spanish debt situation than they were prior to this deal and, after a short rally, the euro has reverted to weakening again. The general gist of the criticism is that all Spain has done is change lenders and moved a problem further into the future. It hasn’t reduced Spain’s lending costs elsewhere and in fact may well have exacerbated the problem as I mentioned yesterday. Moreover, it is now ringing Italy’s immense debt levels into the firing line and that isn’t good for the Eurozone. There is very little EU data today but we do get a whole heap of political and banking sector speeches and meetings to focus on. Aren’t we the lucky ones?
From the UK, we get manufacturing and industrial output figures this morning. They are expected to be a little led bad than the April data so Sterling is likely to improve on the day if those forecasts are proven to be accurate. However, the Eurozone’s woes are still a thorn in the Pound’s side so there is unlikely to be any straight line sterling strength. We also had a member of the Bank of England’s monetary policy committee, Adam Posen calling for further monetary expansion (QE) yesterday so that will keep traders on the twitchy side of calm.
Monday was a quiet day for data and the US diary was the most empty (if that isn’t an oxymoron). And guess what, today’s diary is doing an impression of the Marie Celeste with little more than a smattering of import price data to keep traders interested. On a rainy day in London, it doesn’t exactly stir the blood does it so we may see things a little quiet on the Western Front.
Elsewhere, the Australian and New Zealand Dollars are still weaker on poor Chinese data but there is a distinct lack of Australasian data so it is understandable that traders would concentrate on the Chinese numbers as they look for a steer on these currencies. The negative mood was carried through to the May Australian Business confidence index, released overnight. That showed a sharp downturn in optimism even before the poor Chinese data so things are not likely to have improved for June. Further weakness in these currencies is likely but we need Sterling to hold its own if the Sterling - Aussie and Sterling - Kiwi exchange rates are going to advance.
The Canadian Dollar is showing similarly weak tendencies but that has a lot to do with the problems in the Eurozone and the effect that has on commodity prices. American demand s still relatively strong though so the losses in the Canadian Dollar’s value are likely to be tempered by that.
And finally, I have to confess to loving these odd stories. There are the ones about garden gnomes which go missing but start sending postcards from around the world and this one kind of falls into a similar category. Someone has been taking paintings from the South Australian Art Gallery and hanging them in random locations around Adelaide. 13 paintings have been removed but, as yet, only one has been recovered. The artist should expect postcards to start arriving any day.