The cost of insuring European sovereign debt against default has risen today to a record high as Portugal, Spain and Italy prepare to borrow $43 billion this year. The fallout of the concern caused by this is a marked decline in risk appetite and subsequent decline in global stock markets

The expectation is that the European markets will need to raise $1 trillion this year, with the first bond auction to be held this week. The concern over the ECB’s rescue fund expansion and subsequent ability to bail out countries that are inundated with debt remains at the forefront of traders thoughts despite Germanys failure to repeat its objection to the expansion of the rescue fund.

The Eurozone debt situation time bomb is unlikely to go anywhere anytime soon. The likelihood is that there will be periodic flare ups of the situation that will spark rapid and unpredicatble currency fluctuations. A move towards last year high at 1.2394 could occur if problems persist. However there is some talk in the markets that the situation may settle and retrace. GBP/EUR was at 1.1550 at this time last week and a 4% move in a week could easily spark some profit taking.

UK House prices dropped 1.3% in December according to Halifax this morning. This is the largest decline that we have seen for 3 months and may continue to extend downwards as home buyers continue to be influenced by the uncertainty of the UK economy for 2011.

Today was a relatively quiet day on the data front, tomorrow however sees BRC retail sales and DCLG house prices. These will be eagerly awaited by the markets and will help to establish tomorrows direction. The main market driving forces will continue into tomorrow with focus remaining on the Euro for most traders.

If you have a currency requirement or have any questions or queries with reference to the markets please don’t hesitate to contact me.

“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.”

Best Regards
Luke Zorab

Torfx Currency Dealer