The future of the eurozone hangs in the balance after the expansion plans of the EFSF fell at the final hurdle.
One of the smallest member states has thrown a massive spanner in the works after voting against extending the powers of the main European bailout fund. It goes to show just how difficult it is for monetary unions to exist in such circumstances particularly when you’re asking one of the poorest nations to stump up cash that might be gobbled up by the richer nations.
But all is not lost. There is another vote in Slovakia, yes, yet another vote and this could mean the measures are passed but this all delays things when speed is of the essence. Bank after bank is being nationalised and more funds are being withdrawn from the money markets causing liquidity to dry up. As each day passes another meeting schedule is slipped and we are rapidly moving towards the next crucial G20 meeting at the beginning of November. Further delays will only go further to unsettle the nerves of investors.
One of the other major hurdles that the eurozone faces is that even if Slovakia does pass the vote on the EFSF, whatever is agreed from here as the best way to save the collapse of the EU will probably have to go through another round of ratification by all 17 member states. This time round though the votes may be more difficult to pass considering that many have only just scrapped through in the first place.
Well as the biggest story to dominate financial markets for decades continues to rumble on the FTSE is set to open in the red at 5375 this morning, so not too bad considering. The 5400/35 area remains the big resistance hurdle for the index which it just can’t seem to overcome right at the moment.
Today sees UK unemployment figures which will likely be pounced upon by economists and politicians alike. The number of people claiming job seeker’s allowances is due to rise, with youth unemployment being the one that most will pick on. Jobs are still very hard to come by and will remain so until businesses see an end to the eurozone crisis and have the confidence to start hiring in earnet again.
FX markets were on the whole rather range bound yesterday with EUR/USD rejecting 1.3700 before bouncing off its lows in conjunction with equity markets in order to have another look at its highs. This morning the pair is at 1.3645 still finding the push above 1.3700 too much. This is the near term resistance followed by 1.3760 meanwhile 1.3570/20 and 1.3470 are seem as support.
The weaker than expected UK manufacturing data gave the bears the opportunity to push sterling a little lower. Cable dipped back below the 1.5600 and this morning is at 1.5590. Sterling has managed to remain relatively strong considering that the UK economy has flat lined over the past year, but questions are now being asked over the little “safe haven” status it has recently enjoyed. As mentioned in one of last week’s comments, the UK finances are not in good shape and aren’t getting any better either. The new bout of QE isn’t positive for the UK’s currency either and so at some point investors might turn against the pound. The euro also had the edge over sterling so far this month bringing it back down from the dizzy heights of 1.1700 to 1.1425 this morning.
Gold was not so favourable amongst investors yesterday as it turned in a little decline down to 1635. The precious metal is at 1670 this morning and so traders will be watching support and resistance levels closely seen at 1650/30/00 and 1685/1700/20 respectively.
Brent recaptured the $110 level yesterday after an impressive bounce in line with equity markets. Even despite OPEC cutting its forecast for global oil demand crude prices are showing a bit of resilience with Brent at 110.80 this morning.