Euro under pressure ahead of key EU summit; Egan Jones strikes again

Despite general support across high yielding currencies, the Euro remained out of favor overnight with the assistance of ratings agency Eagan Jones which downgraded Germany from AA- to A+. Investors are also transfixed on the EU Summit at the end of the week and the Euro’s reluctance to grind higher suggests expectations are low. Should markets keep the status quo ahead of the event, it may present upside value for the Euro if European leaders – at the very least – produce any solid growth initiatives. For now we’ve seen a divergence from the Euro against its risk counterparts with the EURAUD pair maintaining a downward trajectory. Support for the Euro kicked in around the $US1.2440 level but remained under pressure below $US1.25-figure.

The cost of Spanish government debt remained a negative focus across markets with an auction of 3-month bills demanding a yield of 2.362 percent, a considerable difference to 0.846 percent last month. It’s evident the ability for Spain to raise cash in the traditional form is becoming unsustainable with the nation essentially being shut out of the debt markets. Although Spain has formerly sought financial assistance to recapitalize its stressed banking system, the risk of a sovereign bailout is growing by the day, placing European leaders under further pressure to come up with a palatable blueprint at this week’s summit.

After sliding on Tuesday, U.S stocks staged a modest comeback overnight but the general lack of optimism surrounding the EU summit later this week kept gains in check. The DOW and S&P closed 0.26 and 0.48 percent higher respectively.

Economic data from the U.S showed the S&P/Case Shiller Housing Index rose modestly in April while U.S consumer confidence fell to an index level of 62 in June against an expected print of 63.

Support was maintained for the Aussie dollar which stabalised above US dollar parity rising to highs of 100.85 US cents with parity acting as short-term support. With no local event risk scheduled for today, we expect the local unit to adhere to these technical levels throughout the domestic trade. At the time of writing the Australian dollar is buying 100.6 US cents.