Portfolio

FX mid-morning: Euro resumes underlying bearish trend

By Jose Pineiro

Date: Friday 08 Jun 2012

FX mid-morning: Euro resumes underlying bearish trend

European markets retreated in the morning session, with the markets reacting to Fitch’s three-notch rating downgrade of Spain at Thursday’s market close.

The latest information hitting the newswires has it that Spain will formally request aid for its banking sector over the weekend. Interestingly, the Ibex35 is holding firm while other major indices extend their declines.

In the foreign exchange market, the euro has resumed its underlying bearish trend. The euro/dollar rallied to move above 1.2600 this week ever since the weak US employment report raised expectations for quantitative easing. The euro/dollar is now fast approaching a short-term support level at 1.2440. The Japanese yen, like other haven currencies, have turned around to head higher. It is a 'risk-on' play for traders again although we cannot really say risk was off this week. The sterling pound remains relatively steady versus the euro but declines versus other majors. The euro/Swiss franc remains anchored to 1.20. We can see how it has flat-lined on the daily chart.

On the macro-economic front, Germany reported this morning its trade balance data. Exports and imports both fell sharply, more than expected. Not surprising was that the trade surplus widened further. In seasonally-adjusted terms, exports fell by 1.7% and imports by 4.8% in the month compared to the -0.7% and -0.1% expected respectively. The Eurozone’s largest economy is feeling the effects of the debt crisis. More problematic is that trade imbalances continue to grow in the region. The data shows that Germany is increasingly benefiting from exports outside of the European Union to the detriment of trade with other EU member states.

Coming up, investors will be alert to trade balance data and wholesale inventories out of the United States.

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