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Gaurav Kashyap, Alpari ME DMCC
A quick glance at the prices from Friday's closing show the Dollar wasn't spared against any currency; EUR gained +0.99% against the Dollar, while the Pound closed +1.12% higher against the Dollar. USDJPY (-1.58%), USDCHF (-0.77%), and USDCAD (-0.51%) all closed lower. Strong gains were made in commodities and equity markets, with the Dow closing 3.10% higher and Crude closing 2.40% higher on the week. It was a week of new records too, with the AUDUSD (+1.67%) and Gold (+1.20%) hitting all-time highs at 1.0774 and $1508.85 per troy ounce respectively.
Greek debt restructuring fear hits markets
Markets opened Monday's trading session with a plethora of news releases which saw risk sentiment drop across the board, taking the Euro more than 260 pips lower against the Dollar to touch a nine day low of 1.4157.
Firstly, news emerging from Greece that there would be a need to restructure the country's debt hit credit and equity markets hard as the Greek 10 year benchmark jumped above fourteen percent for the first time since the creation of the Eurozone. Secondly, the confirmation that the staunchly anti-EU political party, True Finn gained 19% of the popular vote in Finland's recently concluded elections, cast doubts over the proposed bailout of Portugal.
Standard & Poors US rating revision prompts sell-off
And finally (and no doubt the largest catalyst for Monday's large scale selloff) was the announcement by rating agency S&P that the credit rating outlook of the US had been revised from neutral to negative. The rating agency stated that very large budget deficits and rising government debt was the sole reason behind the rating outlook downgrade and the impact on US equities was immediate - the Dow sold off more than 250 points to close Monday's session -1.14% lower.
The announcement caught the markets by surprise and the reaction showed it with the US 10 year dropping in price before ending the session virtually unchanged. As unlikely as a downgrade of a US debt is, the comments by S&P indicate that there could be a 1 in 3 chance that Uncle Sam's debt could be downgraded in the next six to twenty-four months, far less serious than a rating of CreditWatch negative, which would then indicate a 1 in 2 chance of a downgrade in ninety days.
Despite Monday's blip, the markets were able to quickly recover and pare all losses against the Dollar, taking the US Dollar index to its lowest level since the 2008 financial crisis (and taking the Euro to a 15 month high against the US Dollar) as participants turned their focus once again to interest rate expectations and improving economic data emerging from the Eurozone.
Sterling sees high against US Dollar
Wednesday's Bank of England meeting minutes showed that the MPC elected to hold rates at 0.50% with the same voting pattern from the week before, six for a hold and three for a hike. Sentance voted for a fifty basis point hike while Dale and Weale each voted for a twenty-five basis point hike.
The minutes showed little change from the previous month's release and yet surprisingly, the reaction in GBP crosses couldn't have been more different. Following March's report, the GBPUSD pair sold off more than 350 points on the less than hawkish view, whereas in this month's report GBP traders seemed to focus more on Dollar weakness and improving data from the UK, taking the GBPUSD a 16 month high at 1.6600.
In other news, the Kiwi sold off against the Dollar as inflation data from New Zealand showed a slight contraction. The YoY CPI reading came in at 4.5%, well above the previous reading of 4.0% but below expectations. More alarmingly, the QoQ CPI reading from Q1 showed a contraction to 0.8% from a previous reading of 2.3%. NZDUSD snapped a four day run to post a five day low of 0.7821, before reversing to hit at three year high of 0.8038.
Looking at the trading week ahead, we follow the release of several key economic releases which will once again drive the build up (or deterioration) of risk sentiment. All focus will be on the FOMC rate decision on Wednesday followed by the US GDP reading on Thursday.
Staff
