Tuesday, July 12, 2011

Market Afternoon Overview - 12 July 2011

Previous session overview

Growing fears that Europe's debt maelstrom could engulf Italy sent the euro reeling to a four-month low against the dollar and a record low against the Swiss franc Tuesday, amid increasing pessimism about the euro zone's ability to forge a lasting solution to its crisis. 

After weeks of having Greece's financial distress rile markets, Italy has now moved to the fore of investor concerns. Contagion worries have hammered Italian assets, just as the government moves to implement an austerity plan to reduce a yawning fiscal deficit within the next few years. 

In choppy U.S. trading, the euro traded around USD1.3966, more than a cent above overseas trading lows but at its lowest levels since mid-March. Risk aversion buoyed the yen across the board, which traded near JPY111.42 against the euro and below JPY80 versus the dollar. 

The euro plunged to a record low against the Swiss franc at CHF 1.1552 but recovered in early U.S. trading to stand near CHF1.1676. The dollar was modestly lower against the franc around CHF0.8354. 

The Canadian dollar was up modestly early Tuesday, as fears of a contagion waned somewhat, that saw the Loonie reverse some of its overnight losses. The U.S. dollar was lower at CAD0.9680 from CAD0.9689 late Monday. The greenback hit a high of CAD0.9780 overnight on contagion fears particularly from Italy, the third largest economy in the 17-country euro zone.

Market expectation

Traders warily eyed the surging gap between the yields on Italian and Spanish debt, in addition to the mounting costs of insuring against default. Analysts say this was an indication of the market's growing nervousness about a potential Greek debt default, and the contagion risks such an event could unleash.

Greenback remains trading under CAD0.9700 as it retreats across the board particularly versus the Loonie. To the upside, resistance levels could be located at CAD0.9695/00 and above at CAD0.9750 and CAD0.9780 (daily high) while USDCAD could find support at CAD0.9670, CAD0.9650 and CAD0.9600.

For GBPUSD on the upside, the pair might find resistance at USD1.5910/30 (Jun 27/28 lows), and above here, USD1.6000 (psychological level) and USD1.6040 (day high). Support level lies at USD1.5775/00 (day lows), below here, USD1.5745 (Jan 25 lows) and USD1.5650/60 (Dec 17/31 highs).On the longer-term, the pair has resumed the short -term downtrend below USD1.5911, with further downside expected, according to technical analysts.