13 June 2012

Zimbabwe: Pressure Mounts On Euro

THE euro and the sterling pound this week became the most liquid pair that was oversold on depressed price levels and low levels in bullish sentiment. The single-currency (euro), however, continues to be under pressure as Europe, Greece and Spanish concerns intensify. What the market initially welcomed as a bounce in the euro after that Spanish bailout faded as the day progressed.

The euro fell by 1,4 percent against the dollar to trade at US$1,2484 and declined against the yen as the yen haven status returned to the table.

The euro was trading at 99,13 against the yen after falling by 0,2 percent. It also fell against the sterling pound by 0,8 percent to touch 80,60 pence per euro.

After the Spanish bailout the euro was moderate trading around 1,26 mark but fears among investors concerning Greece and Italy gripped the market.

That Spanish optimism took the steam out the currency markets mostly those risk-on currencies.

The dollar rose 0,1 percent against the yen ahead of the Bank of Japan meeting on policy structures concerning growth issues.

At the moment the Bank of Japan feels its armed by a strong yen and those excessive moves in the yen against its counterparts the dollar, euro and sterling pound need to be monitored and addressed early.

In London, its data time as the market awaits industrial data for the month of May and as it stands the UK is going through some rough patches.

Faced with a stubborn inflation, sluggish retail figures for the previous months analysts feel this could be extended into May.

The sterling pound fell by 1,3 percent against the dollar to trade at US$1,5484 and fell by 0,8 percent against the euro to touch 80,60 pence per euro.

In Australia the dollar remains in isolation as Chinese data has failed to drive up gains in the Aussie dollar.

With the Federal Reserve Bank and ECB out of bullets the market expected the Chinese data to drive high-yielding assets into ecstasy but that has failed to materialise.

Europe continues to make headlines as the all-important Greek election on June 17 draw nearer.

The Australian dollar inched lower as concern shifted to Greece and Italy to touch 98,71 US cents 1 percent lower.

Going forward the markets should be prepared on decisive easing by the central bank of China and that could drive commodities.

Chinese inflation for the month of May was 3 percent from the previous of 3,4 percent.

South African markets

South Africa's business confidence fell to its lowest levels in 10 years meaning that South African economy is slowing down and that will likely trigger central bank action as Europe weighs on the emerging markets.

The rand fell to some of its lowest levels trading at 8,4660 against the dollar. There was a bit of disappointment on the markets as that risk rally supported by a Spanish bailout faded plunging the rand as risk appetite subsided.

Italy is next on the bailout list and Greek elections could all weaken the rand further and we could see a possible move to 8,70 against the dollar.

Zimbabwean markets

Confidence in the financial sector is at its lowest levels as the Reserve Bank of Zimbabwe continues to over-regulate the financial sector, pushing companies to sit on the sidelines creating that crisis of confidence.

That Government interference on the private sector through their indigenisation policy, which still needs to be reviewed, is hurting industry creating that bearish tone on the Zimbabwean economy.

Zimbabwean corporates are overweight USD/ZAR and most of the forward contracts are based on this currency pair for transactional purposes.

Commodity markets

Gold rose by 0,8 percent to touch US$1 598,70 an ounce as uncertainty gripped the market on the next best plan to resolve Europe's problem.

The gold price's push towards US$1 600 was based on fear and uncertainty on the market and as long as Europe is in a mess the risk involved is going to weigh other markets favouring gold.

Crude oil declined as demand for oil fell on Europe's problem. At the moment Iran is feeling the strain of an oil market in a free fall than all Opec countries.

Crude oil declined further failing to hold out at US$86,20 per barrel seeing that resistance turning to support as it touched US$81,60 per barrel.

My chart of the day suggests policymakers and the market are not in the same place. The next catalyst for crude oil is the meeting between IEA and Iran on that oil embargo, going forward central bank action likely to determine market swings so as politicians.

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