European Morning Wrap Up; USD, JPY firm on heightened risk aversion

Tue, Nov 3 2009, 11:51 GMT
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Shanghai share index ends up 1.2%, highest close in nearly 3 months RBS to sell insurance, other assets as UK government increases control LLoyds to raise £21 bln to avoid control by government Spain October jobless rises 2.7% vs September, up 98,906 in month compared to rise of 80,367 in September Iran will strongly confront any "illegal" gathering on November 4th. Only anti-US rallies are legal on that date - State News Agency Iran Leader Khameni says the U.S. is a "really arrogant power" and should change behaviour. Iran will not be deceived by Washington's "apparent reconciliatory" behaviour Spanish October consumer confidence fell to 69.2 from 70.3 in September UK October construction PMI index 46.2, worse than median forecast of 47.2 German October new car registrations up 24% y/y -VDIK European stockmarkets down. Having opened lower they saw accelerated losses throughout the morning. FTSE 100 off around 2.3%, DAX 30 off around 2%. Oil meanwhile off nearly a buck. EUR/USD having starting around 1.4780 is finishing the morning down around 1.4635. The EUR/USD paring fell in tandem with stocks. Russia came in buying around 1.4755 which lent some temporary support, buy the euro bears were not to be denied. Reported buy interest at 1.4750 and 1.4720/30 gave way fairly easily and we were soon below 1.4700. A US custody bank was seen as an active seller and stops in te 1.4675/80 gave out accelerating the sell-off. A large Swiss bank came out with a EUR/USD sell recommendation, which added fuel to the fire. They went short at 1.4685 with a 1.4200 target, stop loss at 1.4865. Cable had a bad morning. It's down at 1.6300 from an early 1.6370, but has seen a marginal recovery from session low 1.6271. The market doesn't like what's going on in the UK banking sector (see above), is wary of possible QE extension by as much as £50 bln Thursday and obviously deteriorating public finances are an ongiong worry, with Labour seemigly preparing to ad to the tab. On top of this cable had to put up with disappointing contruction PMI data (see above) and a general pick up in risk aversion. Asian sovereigns and a US investment bank were notable sellers on the way down. The Reserve Bank of India stepped in buying around the lows, lending much-needed support. Sell stops are seen gathered down around 1.6270. USD/JPY sidelined, effectively unchanged at 90.10. AUD/USD has come under heavy pressure against the backdrop of heightened risk aversion, prsently down at .8935 from an early .9015.

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