Greece and Spain Cloud Eurozone Outlook

Recent reports indicate that a deal between Greece and its lenders for further aid remained evasive, while Spain continued to defy calls for a bailout. Given the precarious political environment in both nations, today’s outcome of the Euro Group finance ministers meeting is keenly eyed, as the rigid approach taken by both countries poses a barrier for the region’s policymakers. Meanwhile, the unemployment rate in the US slipped below the crucial 8% mark, providing some much needed relief for the Fed Chairman. With the latest PMI data showing some signs of weakness in the UK, today’s house price and retail sales data promises to offer some clarity on the economic front.

Pound Sterling – UK Markets

On Friday, Sterling slipped against the Euro as upbeat jobs data in the US spurred risk appetite among market participants. However, it has recouped some of its losses against the common currency and is trading higher this morning ahead of the European finance ministers meeting scheduled later today. It is, however, trading lower against the US Dollar on growing risk aversion among investors. Meanwhile, Lloyds employment sentiment revealed deterioration for September but has maintained much of last month’s sharp improvement. The index hovers close to a two year high reaffirming the strength shown by the recent labour market data. Today’s speech by the UK Chancellor, George Osborne, would garner modest market attention for attaining a clearer picture about the government’s austerity programme. During the course of the week, tomorrow’s industrial production and trade balance data are the significant economic releases from the UK. Besides, RICS house price index and BRC retail sales data due late today is expected to offer fresh insights about the British economy.

US Dollar – US Markets

Data revealing that the unemployment rate in the US fell below the 8% mark for the first time since 2009 provided some comfort to the Fed and resulted in a “risk on” rally leading the greenback weaker against its major peers on Friday. In today’s trading session, the US Dollar is trading higher against its major peers as worries over Greece and Spain continued to linger. The deadlock between Greece and its creditors persisted while policymakers in Spain continue to deny calls for a fresh bailout. Additionally, global growth worries remains a cause of concern after the World Bank lowered its 2012 growth forecast for the Chinese economy and also cut its economic growth forecasts for the East Asia and Pacific region. With no macro releases scheduled for today, traders are expected to focus on events in the Eurozone for further cues.

Euro – European Markets

The common currency has begun today’s trading session on a weaker footing against both the Pound and the US Dollar, as concerns over Spain and Greece continued to fuel risk aversion. The representatives of Greece's creditors indicated that negotiations with the debt stricken nation are expected to continue for another week while Spain's economy minister reiterated that the nation would not require a bailout to tackle its fiscal woes. With nothing substantial expected out of today’s Eurozone finance ministers’ meeting, investors would focus on the developments in Spain and Greece for further triggers. In the midst of the persistent deadlock between Greece and its lenders and ahead of the German Chancellor’s visit to Greece, the German finance minister played down hopes by indicating that the Angela Merkel’s visit did not mean that Greece would receive the next tranche of aid. On the macro front, German industrial production figures due later today holds significance in today’s session. Additionally, news flow emanating from the Eurozone is expected to provide direction to the Euro against the majors.

Other Currencies – Highlights

The Aussie Dollar has declined marginally against the US Dollar this morning, as risk appetite among traders waned after reports indicated that the crisis in Spain and Greece is deepening. Moreover, concerns over China’s economic growth escalated after the World Bank cut its current year growth forecast for the Chinese economy to 7.7% compared to its previous estimate of an 8.2% growth. On the economic front, data indicated that Australian foreign reserves climbed for September. A key set of macro releases including unemployment and consumer confidence data scheduled during the week is expected to offer the near term direction for the Australian Dollar against the majors. Apart from domestic cues, traders are expected to set their sights on developments in the Eurozone for further direction to high yield currencies.