Euro faces pressures while gold and silver consolidate

Euro

The EUR/USD came under pressure last week after S&P slashed Spain's rating by two notches, yet the fall was limited as this latest event could in the end put further pressure on Spain to officially request a bailout from the EU. The EUR/USD closed the week at 1.2955 against the dollar, at least 100 pips away from its week-low at 1.2825.

S&P slashed Spain's rating by two notches from BBB to BBB- with a negative outlook, highlighting that the high unemployment rate (which is close to 25%) and the economic recession are limiting Spain's options to get out of the crisis. S&P also cited that the uncertainty regarding Spain's financial aid request had in itself a negative effect on its rating.

However the Spanish bond's yield easing to 5.66% could give the Spanish government breathing room to gain more time before asking the EU for a bailout.

On Monday a Eurogroup meeting in Luxembourg failed to produce any concrete results when it comes to the situation in Spain and Greece, this disappointed investors hoping for a possible Spanish aid request.

Ministers from the Euro bloc declared the €500 billion European Stability Mechanism operational, while saying that Spain may not need it.

In Greece, the government is working on new solutions to reduce the debt of the country given how delays in implementing reforms and the harsh recession have annihilated the country's chances of bringing back the country's ratio of debt to 120% of the GDP by 2020.

This week, markets will be focused on the EU leaders meeting in Brussels as Greece seeks to justify renewed aid and Spain holds out on tapping the 500-billion euro permanent rescue fund.

USD

The release unexpectedly good data supported the greenback against most of the majors.  In particular last week we saw the US' consumer sentiment index hit a 5-year high alongside some stronger-than-expected jobs data. Weekly jobless claims fell to 339,000 last week, marking a four and half year-low while the International trade deficit expanded in the United States for the month of August thanks to drops in exports.

British Pound

From the United Kingdom, the Office for National Statistics released the total trade balance which showed a bigger deficit at -£9.84 billion compared to expectations for -£8.50 billion from July's final reading of -£7.15 billion.

In the meantime, UK Industrial output m/m dipped to -0.5% from July's revised figure of 2.8% (2.9% initially) for the month of August. The actual figure was however in line with the expected levels. UK Manufacturing output m/m slipped to-1.1% even worse than the expected -0.6%, and lower than July's revised value of 3.1% (3.2% in the first estimation).

This latest data out of the UK suggests that the British Pound is being affected by the Eurozone's woes, the slowdown in global growth and the austerity measures implemented by the British Government.

The British Pound fell even more when seen against the US Dollar, losing around 0.70% at Friday' close of 1.6077. The British pound was weaker after the recent economic data out of the UK turned out to be softer than that in the US.

Against the EUR, the GBP continued to find support, rising around 0.22% on the week at 0.8058 and taking advantage of concerns over the Eurozone and specifically the Spanish downgrade by S&P.

JPY

The Yen is back on track as the Chinese economy is showing some signs of stabilisation despite a downwardly revised Chinese economic growth that has affected global demand. The Yen was also helped after China and Japan agreed to hold talks over a recent territorial dispute between the two countries.  Market sentiment remained supported after the latest data released from China showed that exports registered a surprising acceleration during the month of September.

AUD

The Aussie was trading higher earlier this week after the profits registered for commodities. Last week as well, data of Australia showed that the Australian economy created more jobs than had originally been expected, even though the jobless rate hit 2-year highs.

Gold and Silver

The price level for Gold declined to its lowest level in more than two weeks hitting price levels of $1'741.80. The price for the yellow metal eased on speculation that China may not need additional stimulus after exports grew more than estimated in September. The price for silver declined as well to one-month lows.

Despite the decline, ongoing concerns have kept price for the metals in a consolidation mode especially towards the end of last week. Precious metals had benefitted a lot from speculation about increased stimulus over the past few weeks.

The author is Senior Market Analyst, Trading Floor at RTFX Ltd