Author: SondraHunter

The latest grim financial data in several Euro zone areas including Germany, Italy and France will give a boost to the US Dollar Index as investors sell the euro on concerns over the long term viability of the block’s shared currency.

Latest Dollar Index Rate

The ICE US Dollar Index, which tracks the US dollar against six major world currencies was trading at 82.810 – 09.37 GMT today, from the session open of 82.285.

French, Italian and German Data

Mixed signals from France, where the budget deficit narrowed but the trade deficit for April came in wider than expected.

The national overspend fell to €59.9bn for January to April, from €61.4bn for the same period last year. Government spending rose 4.2% to €133.6bn, outpacing higher tax receipts, which rose just 2.7 percent to €91bn. However, the trade deficit stands at €5.8bn, higher than the €5.5bn economists had predicted.

Italian industrial production fell more dramatically than expected in April, with the eurozone’s third largest still deep in recession. April output fell 1.9 percent from teh previous month, far outstripping the 0.5 percent decline predicted by a survey of 18 analysts.

Meanwhile Germany, Europe’s largest economy is beginning to feel the pinch, with seasonally adjusted imports dropping 4.8 percent, their worst decline in two years according to data at Reuters. The numbers will have surprised German economists, who mostly expected the number to remain flat, having falled 0.9 percent in March.

Even worse for the Euro zone, a Spanish credit rating downgrade yesterday evening added to investor reluctance to take on risk and ratcheted up concern the European debt crisis was intensifying.

EU and German sources said that Spain was expected to make a request over the weekend for an aid package to prop up its troubled banks, highlighting the vulnerability of Spain’s financial sector.

“With the negative news on Spain’s rating cut it’s back to reality for the market. The recovery we saw in the last few days was not a sustainable one,” said Lutz Karpowitz, currency strategist at Commerzbank, who forecast the euro would be around $1.20 by the end of June.

Buying The US Dollar

As sluggish global growth prompts central banks to spring into action once again, the US dollar is emerging as the best of a bad bunch of currencies and the surge this morning in the US Dollar Index confirms this again.

Even recent speculation that the US Fed may flood the market with more American dollars to combat continued weakness in the US economy has done little to scare investors away from the world’s favourite safe haven currency.

The reason is that the US economy is in better shape than the rest of the world, helping drive demand for US dollars. Also, a new round of bond buying probably would coincide with a worsening global outlook and a possible deepening of the crisis in Europe, a situation that could also prop up US dollar demand.

The US dollar is up for the year versus the euro, British pound and the Japanese yen. Since early May, as the European crisis heated up again, the US dollar has gained nearly six percent against the euro currency alone.

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Latest grim data out of Euro zone areas will boost US Dollar Index further

Financial markets tumbled in US morning amid disappointing macroeconomic data and lingering concerns over the Eurozone. Wall Street opened lower with both DJIA and S&P 500 losing more than -1.0%. In the commodity sector, crude oil slumped with the front-month WTI crude oil breaking below 90 and diving to 87.49, a level not seen since October 2011, while the equivalent Brent crude contract plummeting to as low as 103.23. Gold also tumbled as the euro declined to 1.24 against the greenback. The yellow metal initially dropped to as low as 1530.4 before recovering to around 1550. Further weakness is expected in the near-term.

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Markets Slump as Italy Auction Misses Expectations, US and EZ Data Disappoint

The euro currency slide continues to gather pace as the US dollar continues to climb close to a 2 year high against the European currency which fell a further 0.46 percent to $1.24450, its lowest level since the summer of 2010.

The euro has so far fallen more than 6 percent against the US dollar in May alone as concerns over European debt and Greece’s membership of the eurozone have grown.

Latest Euro Exchange Rate

The euro to US dollar exchange rate is 0.46 percent lower on Tuesday’s close at $1.24450, while the euro to UK sterling exchange rate is at £0.7980, or 0.16 percent lower.

“Taking problems in Greece and Spain in combination, risks would still seem to be heavily skewed against the euro.” notes Gareth Berry, FX Strategist at UBS.

Euro Rate Cut

Key euro zone bank-to-bank lending rates fell to two-year lows on Wednesday, pushed down by a growing belief the ECB will have to cut interest rates to help shore up a banking system that is creaking at the seams.

The European Central Bank, which kept euro zone rates at 1.0 percent again this month, poured more than 1 trillion euros ($1.25 trillion) of ultra-cheap, three-year funds into commercial banks in December and February.

Those injections of long-term funding (LTROs) halved interbank lending rates, and the banking system is still awash with high levels of excess liquidity.

Markets do not expect a third LTRO any time soon, but have in recent days started placing bets on a rate cut following a run of poor data and mounting evidence that the financial systems in Spain and Greece are close to seizing up.

Many economists now expect at least one 0.25 percentage point cut in the coming months, possibly as early as next week which would also put pressure on further falls for the euro currency.

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Euro currency slide continues to gather pace as US dollar climbs close to a 2 year high

Commodities climbed a tad in European session amid speculations of Chinese stimulus. The direct-trading of Japanese yen and Renminbi has also further paved the way for internationalization of the Chinese currency. While the situation in the Eurozone remains uncertain, the market has temporarily shifted the focus to other regions. Moreover, anticipations of improvement in the US consumer confidence lifted market sentiment.

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Sentiment Lifted by Chinese Stimulus Speculations

Whether Greece will leave the Eurozone continued to be the main topic of the week and given the lack of the concrete measures decided in the informal EU summit to handle the crisis, financial markets remained under pressure. In the commodity sector, crude oil prices declined for the fourth consecutive week amid the focus on macroeconomic factors while fundamental and geopolitical issues took a back seat. Gold was also weighed down as the yellow metal moved more inline with the diving euro than as a safe haven asset in recent weeks.

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Weekly Fundamentals – Markets Haunted by Greece as EU Lacks Measures to Deal with Its Leave or Stay

Financial markets remained pressures in the European session as the informal EU summit brought no new ingredients on stimulating growth and resolving the sovereign debt crisis. Meanwhile, the disappointing PMI data released in the 17-nation bloc also damped sentiment. In the commodity sector, crude oil resumed the decline after a brief recovery while gold would probably record loss for a 4th day.

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Financial Markets Pressured as EU Summit Contains Few Surprises

The market was in a “risk off” mode as investors worried that the informal EU summit (which is still ongoing) would not finalize measures to resolve the Greek issue. Wall Street initially declined sharply but then reversed in the late session amid encouraging US data. The DJIA ended the day losing -0.05% while the S&P 500 added +0.17%. In the commodity sector, the front-month contract for WTI crude oil plummeted to 89.28, the lowest level since November 2011, before settling at 89.90, down -2.13%. while the equivalent Brent contract fell to a 5- month low of 105.39 before ending the day at 105.56, down -2.63%. Apart from the Greek turmoil, reports that the IAEA and Iran negotiation has made some progresses and the World Bank downgrade of China’s growth forecasts also weighed on prices. Gold plummeted for a third consecutive day to 1532.8 before closing at 1548.4, down -1.79%.

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No Deal Expected from the EU Meeting

Financial markets continued the same pessimistic tone, mainly driven by the situation in the Eurozone. The same deadlock remained in Greece with no progress in the formation of a coalition government. Credit ratings of a number of Italian banks were downgraded although bond auction results came in better than expected. Wall Street plunged with the DJIA and the S&P 500 losing -0.98% and -1.11% respectively. In the commodity sector, the front-month contract for WTI crude oil slipped to as low as 93.65 before rebounding to 94.78 at close, down -1.40%, while the equivalent Brent crude contract plummeting to 110.04 before ending the day at 111.57, down -0.61%. the Comex gold contract declined further to 1561.0, down -1.45% at close.

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Markets Remain Pressured by Eurozone Situation. Italian Banks Downgraded

Financial markets were gloomy last week. Driven by the highly political uncertain situation in Greece, disappointing economic data in China and reports of JP Morgan’s $2B trading loss linked to synthetic credit securities, market sentiment was dampened and investors rushed to dump their risky assets and sought shelter in safe haven, the US dollar. Gold, which had demonstrated its safe haven appeal in 2009 and 2010, traded in sync with the euro. The market speculated the yellow metal’s appeal has lost.

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Weekly Funadamentals – Commodities Slumped on Weak Sentiment