Italy: Three Steps Down |
In the first half of the day on Tuesday, the dollar continued its advance on its major competitors. Investor uncertainty regarding the situation in the Euro zone due to the constant lack of any kind of concrete decisions on issuing another tranche of financial aid to Greece has taken its toll: the EUR/USD pair dropped to 1.3150 and the British pound fell to 1.5350 in the GBP/USD pair. The situation began to change after 6:00PM (Moscow Time), when Federal Reserve Chairman Ben Bernanke made his address before the US Congress’s Joint Economic Committee. In the address, Bernanke announced that “the Fed is ready to take additional measures for stimulating the economy if necessary,” and also signaled that, according to the Fed’s calculations, inflation in the US has stabilized. At the same time, he cautioned Congressmen against a policy of excess savings, again pointing to the poor situation on the labor market. Market players assessed his words as a hint that there might be another round of quantitative easing, which would give them a reason to buy risk assets.
However, the real market support was provided by Olli Rehn, the European Commissioner for Economic and Monetary Affairs, at the final moment of trading on the American stock markets. According to Rehn, more and more countries in the region are of the opinion that it is necessary to coordinate actions to prevent a fiscal crisis. Market players took this as a reason to rally, and as a result, in the last 50 minutes of the trading session, the S&P 500 Index added over 4% and the EUR/USD and GBP/USD pairs reached 1.3350 and 1.5500, respectively.
Investors’ positive mood wasn’t even spoiled by the news on Moody’s downgrade of Italy’s sovereign credit rating, news which broke late in the evening, Moscow time. Moody’s lowered Italy’s rating for the first time since 1993, and by three levels – from Aa2 to A2 with a negative outlook. The lowered rating was attributed to fears that Prime Minister Silvio Berlusconi’s government will not be able to reduce the country’s debt burden, the second largest in the region, under such sluggish economic growth.
RoyalMaxBrokers analysts pinpoint some of today’s most interesting macroeconomic data as the Purchasing Managers Index (PMI) for the UK and the Euro zone, the third assessment of the UK’s GDP in the second quarter, and ADP’s data on the US labor market.
Price quotes on gold dropped during trading on Tuesday – the cost of one troy ounce fell below $1630. The price of platinum and palladium dropped to their lowest levels in over a year. During his address, Bernanke didn’t emphasize the threat of inflation and the probability of another round of quantitative easing, which curbed the demand for assets considered an alternative to currencies.
Oil price quotes were rather volatile yesterday. In the first half of the day, the price of oil dropped together with the stock markets, settling at a low around $75 per barrel on WTI. In the second half of the day, oil managed to show a more positive dynamic thanks to growth from American stock indexes after Bernanke’s speech. At the time of writing, a barrel of WTI was at $77.94. Today, RoyalMaxBrokers traders will be waiting for statistics on US oil reserves, which were higher than expected last time.
About the author: Royal Max Brokers
 |
