Euro Struggles on Contagion Fears

By Luke in Currency Articles | December 8, 2010 18:20 | Tags: , , , , , ,

The Euro has struggled in trade today, the small retracement in the EUR/USD pair is likely to be short-lived as market participants speculate that Portugal and Spain will share Ireland’s ill fate moving forward into next year.

A spokesman for the EU Commission has said today that Ireland’s plan to reduce its budget deficit for 2011 is largely in-line with the EU agreement as it shows a “good balance between expenditure and revenue measures.”

Recent efforts taken by EU policy makers have yet to make any significant impact on investor confidence as market participants continue to see a risk for contagion. The emergency measures implemented by the EU, set at improving confidence will therefore need to be continued until at the least the end of Q1 next year.

The British Pound rallied to a high of 1.5834 ‘GBP/USD’, during trade this afternoon, yet the lack of momentum to advance significantly above the 20-Day SMA 1.5817 for the second consecutive day indicates that traders hold this resistance as key on this pair.

The BoE will announce its interest rate decision tomorrow at 12:00 GMT. The expectation is that the benchmark interest rate will be held at 0.50% and the QE asset purchase target will be held at GBP 200Bln. The aim will be to balance the risks for the region, yet the expectation is that the central bank may adopt an increasingly hawkish tone as policy makers expect inflation to hold above the 2% throughout the following year.

Fx futures and options are showing that the market place is now hedging against US Strength. We will therfore accordingly maintain our calls for ongoing US Dollar gains against the Euro, Australian Dollar, and other forex counterparts.

Best Regards
Luke Zorab

“Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.”

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