Technical Analysis: EUR/USD, GBP/USD, USD/JPY, and USD/CAD
ICM Brokers | Nov 15, 2011 07:31AM ET
EUR/USD
Former European Union Competition Commissioner Mario Monti is rushing to form a new government in a bid to restore confidence in Italy’s finances as markets offered little relief to the premier-in-waiting. Italian bonds and stocks erased early gains and declined as Monti met with leaders of the country’s political parties to discuss Cabinet nominees. Italian bonds fell for the first time in three days, pushing the 10-year yield up 25 basis points to 6.70 percent. The difference in yield between 10-year Italian and German bunds gained 36 basis points to 492 basis points, while the benchmark FTSE MIB index closed down 1.99 percent.“Uncertainty remains over Monti’s team, the program and the majority, especially in terms of the conditions that will be requested to assure a stable majority in parliament,” said Gianluca Ziglio, a London-based interest-rate strategist at UBS AG. “The market now expects stability and the restoring of public finances to begin with.”Europe’s inability to contain a regional debt crisis that started in Greece more than two years ago led to a surge in Italian bond yields as investors bet on which nation may need aid next. Monti, an economist and former adviser to Goldman Sachs Group Inc., will try to reassure investors that Italy can cut a 1.9 trillion-euro ($2.6 trillion) debt load and spur economic growth that has lagged behind the euro-region average for more than a decade.
GBP/USD
U.K. stocks declined, erasing last week’s gains on the benchmark FTSE 100 Index, amid concern that the new leaders in Italy and Greece may not be able to push through the measures required to stem the debt crisis. Majestic Wine Plc, which owns the U.K.’s largest chain of wine warehouses, fell to its lowest in seven months after saying its October sales were worse than expected. Schroders Plc lost 2.2 percent. Smith & Nephew Plc rallied 2.6 percent after Exane BNP Paribas advised buying the shares. The FTSE 100 declined 26.34, or 0.5 percent, to 5,519.04 at the close in London. The gauge added 0.3 percent last week as Italy’s Senate approved debt-reduction measures and Greece named a new national-unity government. The FTSE All-Share Index dropped 0.4 percent, while Ireland’s ISEQ Index rose 0.1 percent today. The new administrations in Italy and Greece “are likely to be short-lived and may lack the legitimacy to push through reforms,” Dan Morris , a global strategist at JPMorgan Asset Management, wrote in a report. “With elections expected sometime over the next six months, there will be ongoing doubt about the ability of the governments to pass and implement austerity and growth packages.”
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USD/JPY
Japan’s economy expanded for the first time in four quarters as exports recovered from a record earthquake, an expansion that is already slowing because of weakening overseas demand. Gross domestic product grew at an annualized 6 percent in the three months ending Sept. 30, the fastest pace in 1 1/2-years, the Cabinet Office said today in Tokyo. At 543 trillion yen ($7 trillion), economic output was back to levels seen before the March 11 earthquake, the report showed. Japan’s return to growth after three quarters of contraction was driven by companies including Toyota Motor Corp. making up for lost output from the disaster. A sustained rebound will depend on how much reconstruction demand can offset a slowdown in global growth as Europe’s debt crisis damps global confidence and an appreciating yen erodes profits.“GDP will slow very sharply in the current quarter,” said Kiichi Murashima, chief economist at Citigroup Global Markets Japan Inc. in Tokyo. A yen trading near World War-II highs and Europe’s fiscal woes are “very strong headwinds” for the nation’s manufacturers, he said. Expansions in Asian nations from China to South Korea to the Philippines are already showing signs of cooling. International Monetary Fund Managing Director Christine Lagarde said on Nov. 12 that Japan needed to swiftly implement reconstruction spending.
USD/CAD
Canada’s dollar fell for the first time in three days against its U.S. counterpart on concern European nations may have difficulty repaying their debt, discouraging demand for higher-yielding assets. The Canadian currency dropped as crude oil, Canada’s biggest export, fell. The Canadian dollar is underperforming today after rising versus its commodity-related peers such as the Australian dollar earlier this month. “Its European concern” that’s weakening the Canadian dollar, said Philippe Denolf, a currency trader in Montreal at Laurentian Bank of Canada, in a telephone interview. “Stocks are down so people are buying U.S. dollars.”Canada’s currency depreciated 0.7 percent to C$1.0179 per U.S. dollar at 1:23 p.m. in Toronto. One Canadian dollar buys 98.24 U.S. cents. The Standard & Poor’s 500 Index decreased 1.1 percent. Futures on crude oil fell 1.5 percent to $97.78 a barrel. Government bonds were little changed. The benchmark 10-year yield held steady at 2.13 percent after falling three basis points last week. The price of the 3.25 percent security maturing in June 2021 fell 3 cents to C$109.65.
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