Did someone say contagion? Well whether they did or didn’t this is what the world looks like right now. This slide lower in the EURUSD and general risk sentiment is (in my view) wholly contributed to the pain that Italy is currently going through. Overnight we saw everything take a move lower, including US indices, on the back of poorer reporting from Alcoa and of course the EURUSD. Various attempts at jawboning from the emergency meeting yesterday did little (if anything) positive for the markets and, in fact, a more negative cue was then taken as new rumblings about selective defaults and additional rescue packages were whispered by various news providers.
On the day, Tuesday, we have fairly important bond auctions out of some the poorer European nations and while I expect these to be well-supported, the more important auction will be on Thursday in Italy. With spreads currently blowing out with each passing hour, it will be interesting to see how far the ECB can play its liquidity hand. On top of this, of course, we had even more talk yesterday about extending the EFSF and perhaps this time doubling it in size won’t be enough either…
Turning our attention to the day ahead, as a former colleague of mine once put it “buy USD and wear diamonds”… Now, truthfully, I didn’t have much time for this colleague but the sentiment remains the same as I had stated about 2 weeks ago - being bullish USD for the summer and the bulk of Q3 is the way forward. Clearly, I still stand by this view and don’t even attempt to get in the way of the market today; its going to get ugly folks. By way of levels, don’t ask me today as I don’t want to be a participant in this market…
Data-wise we have the US trade balance and just a raft of unreliably timed headlines that will dictate the price action in the majors…
Good luck and helmets on!
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