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Greece and Italy change their leaders and calm down the markets

Greece and Italy change their leaders and calm down the markets

Despite a more positive end to Thursday, volatility continues to remain elevated (VIX Index remains above 30).The end of the week has seen Italy and Greece, announce firm commitments to form governments led by market friendly candidates. Italian bond yields have declined although remaining worryingly high for the ECB and Italy. The senate will discuss and vote on the austerity and reform bills today and through the weekend if the bill is agreed upon, after which Berlusconi is expected to resign as he had promised earlier in the week. However the EUR/USD rebound from its one month low remains shaky. The 1.3484 support combined with better news must hold to avoid a renewed downside break. Today the calendar remains light in Europe. However, the UK sees the release of October Producer price Indices while the US releases preliminary Michigan Confidence data. European politics and debt crisis remains the key drivers for the day. Despite a Veterans Day holiday in the US FX and Equity markets will remain open.

In the UK, with the MPC willing to accept an overshoot in inflation, for now (and no surprises from yesterday’s rate announcement) this morning’s release of PPI data should prove to be a fairly nondescript affair. Nonetheless, the market is looking for non-seasonally adjusted monthly Input prices to fall to -0.1% from 1.7%, Output to 0.2% from 0.3%m/m and Core Output prices to decline 0.1% from 0.3%m/m. Year on year, markets are expecting a sharp fall in Input prices, 14.60% from 17.50%y/y recorded in September. Other developments domestically came from yesterday’s EU Commission highlighting in a report that it expected UK GDP to only expand 0.7% by year end due to a significant deterioration in the UK economy and warned that the government risked missing its fiscal targets.

Eurozone woes have dominated the week and as it comes to a close it appears the Greek political tragedy could be coming to a close, following reports that a government could be sworn in as early as today. EUR/USD corrected its downside, rebounding of the key 1.35 level and the pair is unlikely to gain any momentum ahead of the weekend. Resistance comes in at the 1.3859 level, a break above that opens potential into the 1.40 handle.

The USD should consolidate its position ahead of the weekend, Veteran’s day holiday will keep the market somewhat muted although FX and Equity markets will remain open. Preliminary Michigan Confidence data (14.55GMT) provides the focus for the market, however we remain of the view this is unlikely to have a major impact on the currency. Nonetheless, the latest upswing in the data from the final September 59.4 reading to 60.9 in October suggests the mood in the US may have lifted slightly and will likely print a positive number. Fed member’s Yellen and Williams will be speaking today.

What does this all mean for me? Well buying your EUR, USD, AUD or any other currency at the wrong time could cost you a fortune. There is no crystal ball but Currency UK can give you the information you need to make an informed decision.

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