The euro remains under pressure in the wake of last week over worries from Spain and Greece. Since last week’s highs above the 1.3100 level, the euro has been sold into making two week lows just this morning.
SPAIN TURMOIL
Opposition to measures aimed at solving the Euro zone crisis are creating more uncertainty for investors already unnerved by weak global economic growth. Outside markets are responding with energy, metals, and stock indices taking notice. The selling seemed to stem from Spain, where its main index has fallen over three percent. Bond yields are on the rise there yet again, as the market awaits news on a bailout by the Spanish Government.
GREECE STILL AN ISSUE
In Greece, workers are striking over new possible austerity measures and there is again rioting in the streets. Weakness in the euro has given the U.S. dollar a rally back to the 80 level. Keep in mind trading volumes are much lighter than normal as many investors sit on the sidelines from all the global uncertainty.
RATINGS WATCH
On Friday, ratings agency Moody’s will publish its latest review of Spain’s credit rating, possibly downgrading the country’s debt to junk status. In addition to a tough 2013 budget to be unveiled on Thursday, the government is due to release plans for structural reforms in the economy and the results of stress tests on the Spanish banking sector.
Spanish Prime Minister Rajoy has all but indicated that he will ask for a bailout if the country’s borrowing costs remain too high for too long. Adding to the uncertainty on a possible Spanish bailout was a letter from Germany, Finland, and the Netherlands on Tuesday that implied that any rescue funds Spain receives for its banks will remain part of its public debt, a decision that would affect Ireland as well.
EURO WILL BE KEY FOR COMMODITIES
In the near term, watch the euro as it will act as a bell-whether for commodity prices. A euro under pressure prompts investors into the dollar, which will downward pressure on commodities particularly metals, indices, and energy.
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There is a significant risk of loss in trading commodities. Past performance is not necessarily indicative of future results. Only risk capital should be used. Losses from commodity investments may be greater than the initial investment(s). Commodity trading is not appropriate for all investors, and a commodity investment must be evaluated in light of the potential for risk of loss as well as the possibility of profit.
