Risk Sentiments Boosted by EU Summit, Dollar And Yen Selloff To Continue
ActionForex | Jul 02, 2012 05:50AM ET
Expectations on last week's EU summit was pretty low but the responses were overwhelmingly positive. Risk markets were given a strong boost where DOW jumped from an intraweek low of 12450 to close at 12880. European equities were also strong with FTSE jumped from intraweek low of 5435 to close at 5571, while DAX also rebound from intraweek low of 6096.9 to close at 6416. Commodity markets were also strong with CRB index rebounded to close at 284.19, after dipping to 266.78. Dollar index, on the other hand, dived to as low as 81.43 before closing at 81.62, comparing to intraweek high of 82.88. The strong momentum is risk markets suggests that more rally lies ahead in near term and we'd now possibly see DOW revisiting this year's high in Q3. Based on that development, dollar and yen would likely remain pressured.
Probably due to the lack of expectations over the EU summit, the measures agreed by the 17-nation leaders surprisingly lifted market sentiment. The European Commission proposed to create a single supervisory mechanism with the ECB involved, allow the Spanish banking system to be financed through the EFSF for the moment and will later be replaced by the ESM without application of the seniority status and use the existing EFSF/ESM instruments 'stabilize markets for Member States'. EU leaders agreed on a growth pact worth of 120B euro, including 10B euro capital boost for the European Investment Bank (EIB). Rompuy stated that the growth pact 'is a sign of our unrelenting commitment' and 'it brings together all concrete measures that we will swiftly take'. Concerning the 100B euro bailout program for Spain, the leaders concluded that financial assistance will be “provided by the EFSF until the ESM becomes available and that it will then be transferred to the ESM'. More importantly there will be no party gaining seniority status, indicating the same status enjoyed by the fund and private investors. More in China Watch: Reverse Repos, Capital Flow And RMB .
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