The euro was under pressure at the start of the week, weighed by concern over Greece as international lenders bumped heads over a longer-term target date to shrink the country’s debt pile. Despite agreeing to give Athens an additional two years to meet its budget targets, eurozone finance ministers and the International Monetary Fund failed to reach an agreement to disburse an aid payment which is crucial for the country to avert bankruptcy.
Gold has found support since President Barack Obama was re-elected to office- Emman Xuereb
Finance ministers agreed to meet again on Tuesday; therefore it was evident that no immediate aid would be given before then. In order to refinance a €5 billion debt maturity tomorrow, Greece held a Treasury bill sale on Tuesday, which was aimed at raising most of the required cash.
Greece sold a total of €4.06 billion in Treasury bills on Tuesday more than its targeted amount of €3.125 billion. The Greek Treasury sold €2.76 billion in four-week bills at an average yield of 3.95 per cent and sold €1.3 billion of 13-week bills at a cost of 4.2 per cent.
With this sale Athens raised most of the €5 billion cash it needs for a debt maturity.
Market players nonetheless were not expecting Greece to default, or the eurozone to desert Greece. However, the lack of clarity and concrete action kept the pressure on the single currency as forex investors shunned risk. EUR/USD fell to a two-month low at 1.2661 in European trade on Tuesday. EUR/JPY also fell to its lowest in over a month, to 100.33, weakening for a fifth day in a row.
Risk sentiment was also bruised by a looming fiscal crisis in the US and by growing global growth concerns following a media report from China, and less than encouraging growth figures from Japan. A state media report from China suggested that the government housing market restrictions will remain in place, dampening optimism that the world’s second largest economy may be gathering pace, just ahead of a political transition in China in which new leadership will be announced. This raised fear that the new leadership will not herald a loosening of economic policies.
Data published on Monday showed Japan’s economy shrunk more than expected in the third quarter compared to the same period last year and also slipped compared to the previous quarter.
Fears of a recession in the US if lawmakers don’t find a way to tackle the imminent fiscal cliff also strangled demand for risk. US equity markets continue to shy away from their peaks after last week’s elections.
The single currency did pull away from its two-week trough on Tuesday, after a German newspaper report said Germany wants to bundle Greek aid into a single payment of more than €44 billion. Italy sold €6.5 billion in 364-day bills on Tuesday at a lower cost than a previous auction, also giving some respite to the common currency. However, gains were limited and EUR/USD stalled at 1.2727, and declined back below 1.2700.
The British pound snapped four days of losses on Tuesday, after data showed inflation in Britain rose more than expected. Consumer prices in the UK came out stronger than expected in October, rising 0.5 per cent from the previous month and 2.7 per cent compared with the same period last year. Factory gate prices also rose, with core output prices up to 2.7 per cent from last year.
GBP/USD rose to 1.5916 on Tuesday, off from a two-month low by 1.5858. After the initial lift received following inflation data, sterling also pared its gains, and dropped back to below 1.5900 at the time of writing.
Gold has found support since President Barack Obama was re-elected to office. The yellow metal has been lifted by expectations that the Federal Reserve’s policy will remain loose for longer. XAU/USD hit a three-week high last Friday by $1,738, but slipped slightly at the start of the week to $1,718, as global growth concerns sent commodity prices lower.
Upcoming FX key events
Today: EZ GDP, EZ CPI and US CPI.
Tomorrow: EZ Trade Balance, US Industrial production and US Manufacturing production.
Technical key points
EUR/USD is neutral.
EUR/GBP is bullish target 0.8220, key reversal point 0.7950.
USD/JPY is bullish, close to reversal point.
GBP/USD is neutral.
USD/CHF is neutral.
AUD/USD is neutral.
NZD/USD is neutral.
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Emman Xuereb is a trader at RTFX Ltd.