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Collinson FX Market Commentary- July 25, 2012 - Negative credit watch

by Collinson FX on 25 Jul 2012
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Collinson FX market Commentary: July 25, 2012

Fear gripped European markets after Moody's put Germany, Netherlands and Luxembourg on negative credit watch. The news is grim indeed as these are the nations that have been the bastion of support while all around fall.

EU Officials have also revealed further restructuring of the Greek debt ahead of the troika assessing the progress on austerity measures. The restructuring means further extension of bailout funds which have already overwhelmed the balance sheet. Greece is beyond the point of no return and continued support is an effort to keep the single currency whole.

The black hole is swallowing up billions and the appetite will not be sated. The EUR slipped to 1.2050 and Spanish Bond yields surged. The 10 year breached 7.5% and the 5 year overtook this causing markets to sit up and take notice!

Contagion spread across European markets and to the US. Equities collapsed and risk appetite crashed. This hurt the AUD which dropped to trade 1.0215 and the KIWI to 0.7850.

The Richmond Fed's Manufacturing Activity reported further weakness falling from flat to negative 17! The European news is hitting demand globally which is impacting China and the US. The flow on is falling demand which must impact commodity prices and thus associated currencies.

The AUD plunged as a result with risk not that attractive. All eyes remain on the EU with the crescendo building and something has to give!

Collinson FX market Commentary: July 24, 2012

European markets hit the panic button with a freeze on short selling. This is a red flag and was reflected in equity and bond markets. Spanish and Italian bonds hit new highs with spreads at record levels. US and German bonds plunged with the panic flight to safety with short dated bonds reaching negative yields in some quarters. It appears that the EU is fast approaching critical levels and just now cut Greece loose in the vain hope of saving Spain and Italy.

Realisation must be nigh that the single currency is disfunctional and must now be abandoned in its current form. It may be the Germans leave and and sacrifice the advantage of a weak currency for economic stability. The price of the EUR is far to high a political price to pay for responsible citizens. EU consumer confidence fell further to 21.6 reflecting the serious doubts held by the citizens.

The US followed European markets although equities rallied on the close after the Chicago Fed shows national activity continued to decline. On the corporate earnings front Maccers missed expectations meaning that even the consumers stomachs are beginning to turn.

The higher interest rate yields provided by the AUD failed to find support as risk outweighed greed. The AUD fell to 1.0280 and the KIWI dipped below 0.7900. Technicals now point to the edge of the cliff and if these levels are breached then we have major market adjustments.


Collinson FX market Commentary: July 23, 2012

Equity markets gave up some of the week's gains after more fears over the European debt crises spread across global markets. The focus remains on Spain as EU Finance Ministers approved the Bail Out package for Spanish Banks.

The lack of EURO's seems to spook markets in the more traditional banking run scares. Valencia has indicated it will seek Government Bailout and now the focus will be on the necessity for an additional Sovereign Bail Out. The Greek debacle will also return to the fore with further bailout advances due in August and their failure to meet austerity requirements. The departure of Greece from the Euro may release some pressure although the fundamental dis-functionality remains.

China has indicated intervention to prevent real estate speculation with the economic slowdown now looking to prick the bubble. US Markets fell with little economic news allowing the focus to revert to Europe.

Commodities drifted lower with demand pushing the AUD back to 1,0370 and the KIWI back under 0.8000. The EUR continued lower to 1.2160 after the Spanish 10 year bonds hit 7.27% threatening the very existence of the single currency.

Markets will remain attentive of the EU debt crises while looking closely at US Housing and GDP growth.

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