Doubt about Ireland’s ability to repay its debts spread through the currency markets yesterday, driving the euro lower and overshadowing G20 attempts to ease currency tensions and secure commitment to more balanced global growth. The pound managed to break through resistance at 1.1750 GBP/EUR and then further through an options barrier at 1.1780 GBP/EUR before running out of steam late in the afternoon.
Considering yesterday was an American market holiday with volume thin on the ground this was a good showing.
Yields on 10-year Irish bonds rose well above 8 percent to a record high over comparable German debt. These bond prices are untenable for the Irish economy with fears growing that they will not be able to afford the interest payments and trigger a Greek style bail out. The euro fell as low as $1.3642, a five-week trough, and was last down 1 percent at $1.3656.
“The euro can’t sustain even modest upticks right now,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman, adding that its break of $1.3650 “could open up another two-cent decline.”
He added, “Europe never fully addressed these problems, and it’s clear solvency issues in Ireland have not been resolved.”
Some traders said solvency fears were spreading, with a rise in Spanish bond yields increasing market anxiety.
“If Spain is coming under the microscope, we could have a larger breakdown in the euro given the size of the Spanish economy,” said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey.
This mornings European GDP figure will be followed closely and could add to the Euros woes.
Torfx clients are certainly looking to take advantage of any further Euro weakness by placing orders at the top of the range. As we have seen before this market can easily reverse at any time.