Forex Fundamental Analysis
The announcement that the S&P ratings agency was switching 15 EU countries to “credit watch negative” on Monday rocked the markets towards the end of the US session, and sent the EUR/USD pair lower after originally rising during the session.
The leaders of France and Germany have called for treaty reforms to ensure that a future Eurozone crisis can be prevented; better late than never. They hope that the revised treaty could be in place by March 2012 which is lightening fast by EU standards.
The news that leading central banks would act in concert to improve financial sector access to Dollars and boost liquidity, buoyed the markets last week. News that France and Germany were proposing a tighter fiscal union within the Eurozone and that the ECB was prepared to act more aggressively to support the Euro also helped to bolster confidence.
The Euro has been doing a very fair impression of a yoyo in recent months. The downswings happen whenever markets react badly to news on the national level, pushing government bond yields higher and the Euro lower. In the absence of news, speculators gradually push the currency higher.
The basic thing about banks (commercial banks) is that they make money by taking in deposits and offering loans. The interest on savings is always a good bit less than the interest payable on a loan, so banking is a profitable business.
The central banks of Switzerland, Canada, Japan, the United States, England, and the Euro Zone have all stepped into the markets by lowering swap rates for Dollars on Wednesday.
America has just celebrated its Thanksgiving holiday and that is traditionally seen (in commercial terms at any rate) as the start of the festive season. Every year, may consumers spend more than they can afford at this time of year (even in the good times) and since domestic expenditure accounts for roughly 70% of American GDP, it is always a critical time for retail businesses.
While the entire world frets about the European debt crisis, it makes sense that most traders are focusing solely on the EUR/USD currency pair. The headlines come out and push this pair up and down in violent movements that can make for sudden profits.
Greece has plunged the Eurozone into a crisis which is sending shock waves around the world due to the inter-connectivity of the business world. The Greek sovereign debt crisis has been triggered by a debt of €310 billion – Italy, the next performer to take to the stage in Europe, has debts in excess of €1 trillion.
Friday was the end of the month as far as these summaries are concerned. November has been dominated by political uncertainty and on-going concerns about the sovereign debt crisis in Europe. All of the markets ended the week lower.
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