China’s Weakness Comes At Worst Timing
(eToro Blog) As the trading week begins, two lingering concerns are playing havoc with the common currency Euro, pushing it broadly lower and resulting in a record low against the safe haven Swiss Franc. Starting with data from China, a recent survey of purchasing managers conducted by China's HSBC points to slowing growth in the sector, with the month of May marking the slowest growth in 10 months. The Chinese central bank has been aggressively working to cool down the red hot economy through a series of interest rate hikes and increases to bank reserve requirement ratios. This latest data suggests that those attempts may finally be having some impact.
Ongoing worries over Eurozone debt, this time from several of the the PIGS, have escalated yet again, following last week's ratings downgrade of Greek debt by the Fitch ratings agency. The Greek government and the European Central Bank are adamant that the country should take any means possible to avoid restructuring its sovereign debt, but analysts and markets believe that that is Greece's only option at this time. The ECB's position is that should Greece be allowed to restructure, others in similar predicaments will also petition for a similar resolution.
Even as Fitch lowered Greece's rating, Standard & Poor's moved to lower the credit outlook for Italy to negative from stable. And in Spain, local election results provided confirmation that voters are unhappy with the incumbent government and their plans to move the country out of its sovereign fiscal crisis through more austerity measures. The blow to Spain's ruling Socialist party means that Prime Minister Zapatero will have far more difficulty in moving forward with the government's agenda.
The Euro has been facing tremendous pressure as a result, striking a 2-month low to $1.4017 against the U.S. Dollar, and a historic low against the safe haven Swiss Franc when it hit 1.2378 Swiss Francs. Analysts point out that Eurozone and China worries are prompting investors to see their safe havens again; gold prices were also buoyed by that sentiment.
On the eToro trading floor, EUR/USD was recently trading at 1.4007, and sentiment among eToro traders was heavily bullish in favor of buying by a ratio of 9 buyers to 4 sellers. Likewise among eToro's traders of EUR/CHF, recently at 1.2369, sentiment also favored buying by a ratio of 9 buyers to 3 sellers.
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