Intraday Market Thoughts

Euro Pendulum Swings Lower after Spain Downgrade

by Adam Button
Oct 18, 2011 23:01

Euro ended lower in late Tuesday, after starting on a down note in the morning, followed by a late session rebound on a report that Germany and France have agreed to lever the EFSF. But the single currency lost most of those later session gains when Moody's downgraded of Spain. AUD was the top performer while GBP lagged. The Asia-Pacific session features second-tier data like Australia's leading index and Japan's all-activity index. A 2nd update of the Premium Insights will be released at arppox 19:30 EST, 23:30 GMT.

The Guardian reported that German and French leaders have agreed to boost the EFSF to 2 trillion euros using leverage as part of a comprehensive plan to manage the sovereign crisis. Markets cheered the news as the euro erased earlier losses and risk assets surged. The S&P 500 closed up 2% to 1225 the highest close since Aug 3.

Markets continued to be volatile after the close as Moodys downgraded Spain by two notches. A one notch cut was expected but this move brings them one level lower than S&P and Fitch. Also weighing was an earnings miss from Apple the first time below the consensus in 8 years.

The pound slumped on a gloomy speech from BOE leader King who said time is running out to fix the world economic crisis and that it may inflict pain on everyone in the UK.

Bernanke also spoke Tuesday but he avoided talking about the current economic outlook. Instead, he focused on the future of monetary policy saying transparency and communication will continue to improve.

5 out of 9 trades hit all targets in today's Premium Intermarket Insights, 2 are working and 2 stopped out. Direct Access here:

Asia-Pacific Preview

At 2230 GMT, the MI/Westpac leading index will be released. The Aug report showed 0.5% increases and there is no consensus for this release. At 0430 GMT, Japans all-industry activity index is expected to decline 0.4% after a 0.4% rise in the prior month. Both of these releases will be overlooked as traders continue to focus on Europe and corporate earnings.


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