Investors finally heard from EU leaders late last night as they worked till early hours of the morning on the rescue plan for Europe. The EU leaders agreed on three main points of the rescue plan; (1) Private sector banks agreed to take a 50% haircut on Greek bonds, (2) expansion of the EFSF fund to €1 trillion by offering insurance to purchasers of euro zone debt in the primary markets, and (3) the recapitalisation of banks in Europe with the EBA stating that banks need to raise €106 billion. Investors felt that EU leaders had made progress in their plan to boost the European economy, and as a result risk appetite returned to the markets. The EUR/USD opened on Tuesday at 1.3906 and initially jumped around in the Asian session. Just ahead of the US markets open, the euro gained strength against the dollar reaching a high of 1.3975. As news broke out shortly after that the EU governments and the banks were not in agreement regarding the haircut on Greek bonds, the EUR/USD turned and dropped 175 pips down to 1.3800. News continued to trickle out from the EU summit in Brussels, turning more to the positive side as the EUR/USD rebounded and opened this morning at 1.3905, close to yesterday’s open. It dropped back down to 1.3865 early in the Asian session today, but as actual headlines were released about the three point rescue plan, investors regained their confidence, and the euro started to surge back up reaching a high for today of 1.4037. Analysts felt that although EU leaders had finally come up with a plan that gave markets a positive sentiment for the euro, they know that there is still a lot of work to be done before Europe is out of the danger zone. The details regarding their plan to expand the EFSF fund were not decided yet and will only be agreed upon in November. Moreover, some felt that the amount of €1 trillion would not be enough to rescue all of Europe’s countries in need of a bailout. However, investors have digested the news as positive as the euro continues to rise against the dollar.
GBP/USD: Opened at 1.5999 yesterday and jumped up to 1.6040 during the Asian session. The sterling was also impacted by the news coming from the EU summit throughout the day yesterday. It dropped down to 1.5890 as the US markets opened due to unsettling nerves regarding the EU summit, and negative CBI data for the UK was digested by the market participants. Despite earlier announcements that EU leaders and banks were in disagreements regarding the haircut on Greek bonds, the GBP/USD reversed as the news from Brussels was more positive. It climbed back up to 1.5980, not completely recovering its losses from the day; however it opened in Asia this morning at 1.5972 and has continued to track higher on markets positive sentiments surrounding the EU rescue plan, reaching a high for today of 1.6033. It is currently trading sideways at 1.6000. Investors anticipate further bullish momentum for the sterling today, although they are still cautious of the facts that the expansion in the EFSF fund may not be enough, and that the details are yet to be decided on how the EU leaders plan to carry out this expansion.
USD/JPY: Opened yesterday to trade at 76.07 and gradually lost momentum reaching an intraday low as the session unfolded touching 75.71 spurred by the return of risk appetite to the markets. The USD/JPY later traded higher at 76.30 as the Bank of Japan reported at its policy meeting yesterday that it will consider increasing its yen asset buying by $65 billion. Furthermore speculation as to the central’s banks currency intervention to curb the yen’s strength continues to linger. It ended the New York session lower as the EU summit rescue plan was announced and investors regained their confidence in risker assets. Today the USD/JPY opened the session at 76.16 and has since declined to trade at 75.94 as market sentiment continues to be positive surrounding the euro. Traders are still wary of possible market intervention due to the Japanese finance minister’s warnings, although the fresh lows of 75.71 may indicate otherwise. US data regarding unemployment claims and GDP are expected to be released today and could have an impact on the USD/JPY.
USD/CHF: Opened yesterday’s trading session at 0.8780 consolidating around this level for most of the morning session, and later declining to 0.8730 unable to find direction as market participants eagerly anticipated the outcome of the EU summit. The US dollar later rebounded trading higher versus the franc at 0.8857 amidst uncertainty surrounding the EU’s ability to come up with a plan to resolve the debt crisis triggering dollar buying. The high was also attributed to better than expected US Home Sales data released yesterday. However the dollar gains were short-lived as the USD/CHF came back down to close the session at 0.8806. The dollar was sold off as a result of increased risk appetite brought about by investors’ confidence in the results of the EU summit. It continued to trade lower against the franc throughout today’s morning session opening at 0.8807, and gradually dropping to 0.8733. The USD/CHF’s decline comes following the deal reached by EU leaders to boost the amount of the bailout fund to $1.4 trillion; progress was made on bank recapitalization and a 50% write down for private bondholders of Greek debt. The Swiss franc may continue to gain against the dollar as per Trading Central. Investors’ focus will remain on the outcome of the EU summit until the KOF Economic Barometer data is released for Switzerland tomorrow.
Commodities
Oil: Crude oil opened yesterday at 92.44 and rose steadily during the Asian session to find strong resistance at 93.65. The commodity then traded sideways within a 50 pips range during the early European session as traders were waiting for any update from the EU summit. Crude oil price dropped over 290 pips as EU leaders’ strategy to recapitalize banks and increase the EFSF fund will only be revealed next month. This strong bearish momentum was further accentuated by the US EIA report, which showed that crude oil inventories rose by 4.7 million barrels last week, much higher than the 1.3 million barrels expected. Prices dropped to the day’s low at 90.00 before retracing to close at 90.90, marking an overall 154 pips loss for the day. Crude oil prices are currently 125 pips higher than the open and are expected to go long as per Trading Central’s previsions.
Gold: Gold prices opened yesterday at 1705. After a quick 100 pips drop during the early Asian session, the precious metal reversed and found resistance of 1720. Gold prices then fell to an intraday low at 1701 as risked appetite increased demand for higher yielding assets, providing gold prices with a bearish momentum. However, the commodity benefited from risk aversion following a disappointing outcome from EU leaders early in the New York session. Gold prices reversed to close the day with a 200 pips gain. The commodity opened today at 1725 and is currently trading sideways at the open price. The gold outlook remains on the upside as per Trading Central’s previsions. Traders will be focusing on data released from the US at 12:30 and 14:00 GMT as these reports may have an impact on the bullion prices.