European Sovereign Debt Rules

12-01-2011

The USD lost some ground to the EUR and GBP on Tuesday, but still maintains the stronger zones of its range. The impetus for the day came from Portugal as the government denied that it will need to step in line for a bailout regarding its financial prospects. Portugal will be offering their bonds to the marketplace today and the yields on the debt will be watched closely by all investors. Tomorrow Spain and Italy will step up to the plate as they sell their Sovereign Debt. The USD gave back some of its recent gains versus the EUR due to the pronouncements of Portugal. However it remains to be seen what the real future holds - one day does not make year or even a month. It was a quiet day of data internationally yesterday and economic reports will stay relatively benign Wednesday.

But plenty of news will abound regarding the Portugal debt auction and its impact will have a direct result on the EUR today. Also waiting in the wings is the ECB monetary policy meeting tomorrow and the always critical press conference that President Trichet will hold. Trichet is sure to be put on the hot seat tomorrow and nearly every gasp coming from his mouth could have a direct affect on the markets across the board. While Portugal denies that it will need ECB or IMF aid, there are more than a handful of analysts who doubt these statements when taking Portugal’s growth prospects into account. Simply put, many analysts believe that Portugal’s short term math does not add up, particularly if they are forced to pay higher yields on their bonds. Lurking in the shadows and a question that will certainly be brought forth tomorrow will be just how active the ECB is within these European bond auctions and if they are buying Sovereign Debt in an effort to stabilize the debt markets.
The U.S. will release Federal Budget reports today along with the Beige Book. Also Crude Oil Inventories data will be brought forth. The commodities market has provided fireworks the past month and is certain to continue to be the playground of traders, investors, and speculators in the weeks to come. With questions continuing to abound about the health of global economies, consumption and demand will be monitored closely. Wall Street turned in a slightly positive day on Tuesday, but it has found a tough road so far in early trading 2011. Tomorrow the U.S. will issue weekly Unemployment Claims. And on Friday the States will issue Retail Sales statistics. The combination of these two reports will be worth watching and could have a slight impact on the USD if the greenback is able to step away from a EUR centric risk sphere.

The Sterling enjoyed a solid day of trading as it benefited from Portugal’s stance regarding a bailout. The GBP finds itself still within the weaker parts of its range versus the USD and the news coming from Europe will continue to have a direct affect on its performance in the short term. The U.K. will publish Trade Balance numbers today and Manufacturing Production results tomorrow. However the Bank of England is also holding a monetary policy meeting and its results will be known tomorrow. The U.K. continues to turn in mixed economic data showing that it is not out of the woods yet regarding the tough conditions. Thus no major surprises are expected tomorrow from the BoE. Traders will need to monitor the data from the U.K. but keep an eye on the EUR also as a looking glass into the GBP.

The JPY traded in a consolidated range on Tuesday as traders took a wait and see approach. The AUD found some stability yesterday after losing value the previous three sessions. The flooding in Australia continues to be an economic concern regarding prospects for the country’s GDP. However Gold traded higher yesterday and may have provided the AUD with a base of support. The AUD should be watched closely for volatility the next two days.

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