There is no change to sentiment in the forex markets this morning as the euro remains on the back foot as Eurozone bond yield spreads remain the driver for US Dollar buying. This is sufficient to keep Eurodollar testing 2 – 3 month lows on a daily basis.

The sovereign spreads continued to widen yesterday despite the widely heralded financial rescue announced for Ireland and its banking sector. The package did little to dissuade fears of contagion of the Greek/Irish problems into other peripheral nations. Official reaction towards the future of the Euro and Eurozone has remained positive with ECB and EU spokespersons being joined by the Chinese government news agency, Xinhua in encouraging the future of both.

The Chinese stated that ‘Contrary to the widespread claim that the Eurozone is doomed to break up, the single currency will not fail’. It did add however that the currency was facing its toughest challenge since instigation.

Other than the above interest, things in the CFD trading markets remain subdued with just minor de-risking taking place ahead of the year end. Now is the time of course that analysts are penciling in their outlook for currencies for next year.

Against the current back drop and with adverse conditions in the UK, Eurozone and Japan expected to persist for a while yet, most predictions are for the Dollar to be stronger overall during 2011. This will only strengthen traders’ resolve to test lower levers in Eurodollar and Cable and push USD/Yen higher during the remaining few trading days in 2010.

Data today can again be viewed largely as second string. Following the as expected revision to growth projections for the UK from the OBR and despite weaker than expected loan growth and consumer sentiment, Sterling remained unfazed, slipping versus the stronger greenback, but making gains against the beleaguered Euro.

No further data scheduled today from the UK. Eurozone data remains being reported on the reasonable to good side but is unable to provide any support for the currency. Today’s unemployment reports and provisional CPI estimate are unlikely to change this pattern. Ahead in the US today, we have S&P/Case Shiller housing data, the Chicago PMI, and the Conference Board consumer confidence index.

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So we now know the gory details. First, the main points: the Irish bailout of €85 billion will be made up of external support from the IMF and EFSF of €67.5 billion and domestic funds of €17.5 billion.

The Irish contribution comes from the now decimated National Pension Reserve Fund with the UK making a bilateral loan of €3.8 billion as well as contributing to the IMF funds (and you thought the money saved in recent round of UK spending cuts was used for paying down our own debt…).

The effective interest rate that the Irish will pay on the loan is reported at 5.8% according to the official document, but private calculations have put the figure closer to 7.25% and this will lead to an astonishing 20 per cent of Irish tax revenues servicing the debt by 2014 according to calculations.

The main controversy is the news that senior bond holders in the Irish banks will received no haircut on their holdings – no doubt due to contagion fears as investors dump bank bonds in the event of any short back and sides – and the banks are estimated to need an extra €8bn to get core Tier One capital to at least 12 per cent.

And come up for breath. More than three quarters of Eurozone government debt is held by Eurozone members, mostly financial institutions so you can see why this package wants to protect senior debt holders.

However politically there is huge pressure to make sure that tax payers do not shoulder the whole burden and write downs on bond holdings in the future cannot be ruled out. Inevitably the forex markets continue to see the Euro fall against the USD which continues to perform well in the face of heightened uncertainty.

Elsewhere in the CFD trading markets, Sterling has also opened the week on the back foot as UK institutions are reckoned to be the most financially exposed to the Irish, particularly RBS through Ulster Bank. UK House prices have continued to fall for the fifth month in row, but mortgage approvals came in slightly ahead of forecast.

There will need to be a much larger turn around in approvals for it to have any significant impact on house prices in a falling market. This week is a light one for Sterling data which the only figures of note UK PMI on Wednesday and further house price figures on Friday.

The Dollar trades at a two month high against the Euro and is looking at its first monthly gain versus the Yen since April. In a week which will probably prove to be highly embarrassing for the US after 250,000 classified diplomatic cables are released by media around the world, we have ISM manufacturing, consumer confidence and non farm payrolls to look forward to.

But not as much as those cables. According to reports, the cables will reveal disparaging remarks about Gordon Brown and David Cameron, my bet is that the UK public will probably agree with whatever is said

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The Euro remains on the back foot in the forex markets this morning as we draw near the end of a troublesome week for the single European currency. Sovereign debt concerns are continuing to dominate, prompting the single currency to hit two-month lows against the dollar.

The focus of attention has moved to Portugal as reports that Eurozone Politicians are placing pressure on the Portuguese to obtain support from a EUR 750 billion bailout fund. The underlying principle behind piling pressure on the Portuguese government is undoubtedly an attempt by the EU to border contagion effects and in particular to limit the likelihood of having to bail out Spain.

Even with these ongoing efforts, borrowing costs for the euro region’s most indebted nations are surging. The average yield investors demand 10-year debt from Portugal, Ireland, Italy, Greece and Spain hit over 7.5% yesterday, a record for the Eurozone.

Today the Euro/Dollar spot rate is resting at the medium strength Euro support level of $1.3265 having tested levels just below this point twice already. Asian markets are targeting similar deals in USD/Yen with the ¥84.00 level proving to be a sufficiently strong Dollar resistance point to defy further Yen weakness, for now.

The Korean situation is much more relevant to Tokyo traders positioning and therefore Yen selling is more pronounced in Asian markets, leaving Europe to play a bit of a catch up in Euro/Yen and Euro/Dollar.

It is not unthinkable to imagine an early shake out overnight moves with profit taking on short Euro positions pushing Euro/Dollar back up to $1.3300 but with all eyes on the debt positions of Portugal, Spain and Belgium, any bounce for the single currency may be short lived.

CFD traders will not want to be long of Euro over the weekend and with 95% of all Americans supposedly off today in order to buy, buy, buy anything that moves, we could see a sharp dip in the Euro’s value sooner today rather than later.

Markets will be only too well aware that Ireland’s bail-out was agreed and announced late last weekend and that the headlines this morning concerning Portugal have a very similar ring to them.

Today there is no significant EU or UK data and with the US markets looking likely to be specially thin in terms of activity and therefore volume, all of the action today will stem from developments in the Eurozone and will, as yesterday, finish early. The immediate outlook does appear risk negative/Dollar positive.

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The Irish 4-year austerity plan was released and contained few surprises. PM Brian Cowen said that a bailout of €85bn has been discussed with EU and IMF officials, though not yet agreed.

While a successful conclusion of negotiations on an aid package could help stem some of the recent euro downslide, the forex markets are unlikely to see a more substantial euro recovery ahead of the budget vote.

The dollar moved lower yesterday against its main rivals, after the release of a mixed string of economic figures, with employment and consumer spending giving reasons for hope while durable goods orders showed downbeat readings. Personal Income and spending rose in October, while initial jobless claims declined.

On the other hand, US durable goods orders dropped 3.3% against market expectations for a 1.1% increase. However, the dollar firmed during the Asian session overnight as speculation about further China tightening continued, and the recent confrontation on the Korean peninsula produced more headlines.

Elsewhere in the CFD trading markets, the economic data in Europe showed business confidence in Germany rose to a record high in November, with the IFO survey advancing to 109.3 from a revised 107.7 in the previous month. The gauge for future expectations increased to 106.3 from 105.2 in October to mark the highest reading since the series began in 1991.

In the UK, Bank of England Monetary Policy Committee Member Andrew Sentance has said he fears that monetary discipline and confidence in the inflation target risks being eroded if emergency monetary policy settings remain intact for too long and reiterated his view that the BOE should begin to raise the Central Bank Rate.

The calendar of eco data is empty today with US markets closed for the Thanksgiving Day holiday though the markets in the UK will be watching closely for the Treasury Committee Hearing as Bank of England MPC members testify on the Quarterly Inflation Report.

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The Dollar continues to advance against the Pound and Euro in the forex markets this morning as the safe haven currencies benefit from the ongoing tensions on the Korean peninsular.

A US aircraft carrier is on route to support the South Koreans in a spot of puffing the chest and attempting to look scary in a joint military exercise, with the Chinese also announcing they will look to work with the US to resolve the tensions. With all sides on edge, the Dollar and Swiss franc will continue to hold onto its gains in the coming days.

Elsewhere in the CFD trading markets, the release of the Federal Reserve minutes last night passed largely as expected, with most members agreed that the benefits of further QE still outweigh the costs and that a monthly purchase scheme was the best option available.

The Fed also discussed specific term rate targeting – a departure from the current duel mandate of inflation and employment – and the uber QE option if pursued. This will be worth following going forward since any change in the Feds mandate or stance will likely have large ramifications for the Dollar.

Ireland. That, in one word, is why the Euro continues to lose value against Sterling and the Dollar in the forex markets. After snaring its prey after what seems like one of the most drawn out pursuits in history, the market is now on the look out for its next victim.

Portugal is currently in the crosshair, and will face almost certain death unless drastic fiscal action – which is not guaranteed to work – is implemented almost immediately. The real worry continues to be Spain which, if it were require EU cash, would almost certainly use up most if not all of the funds and probably need further money down the line.

This story has much further to run and the big question is how will the Germans, who are bearing the brunt of the costs, react the a further wave of bail outs, and will this lead to political reforms in those countries led by Germany? Interesting times.

UK GDP was unchanged at 0.8% quarter on quarter this morning, with the annualised rate also unchanged at 2.8%. The market expected a revision downwards so an unchanged figure would, in normal market conditions, lend the Pound some strength.

However, Sterling is being thrown around like a rag doll by the Dollar and Euro and with a raft of low key UK economic figures out today the theme of Strength against the Euro and weakness versus the Dollar is likely to continue.

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All eyes will be European markets to see whether Ireland’s reluctant receipt of a financial bailout package will provide its function and ease the pressure on the Eurozone peripheral debt market and thus prevent looming implosion of the region’s financial system.

The single European currency has made huge gains in the forex markets over the past few trading sessions however a continued theme looks unlikely. With negotiations between Ireland, the ECB and the IMF over, now the discussions regarding specific backing will not doubt drag for several days, if not go into December, so traders will probably look at current rates to go short on the euro.

The theory being that contagion from Ireland is already in place and that interest will now move to Iberia as the next in the firing line for financing difficulties, which will have knock on affects in the CFDs trading markets.

The prospects for European economic revival remain under pressure, an improvement in the peripheral nations’ finances looks unlikely and unless the German consumer can be persuaded to begin trading goods from Spain, Portugal et al, then more problems could be on the menu.

The ECB are going to busy going forward, not just in the immediate months to make straight the current mess, but also in the years to come, to create an instrument to safeguard against this situation happening again.

The ECB are having to play an ‘all in hand’ here, with the downside being the failure of the Euro itself but the upside being the creation of a plausible option to the US Dollar as a reserve currency, ahead of any relaxation in Yuan exchange control regulation.

In a completely separate development, news of an exchange of fire on the Korean peninsula between the North and the South, led to a sudden increase in risk aversion towards the end of the Asian session. Due to its safe haven status, the US Dollar strengthened sharply (along with the Swiss Franc), in particular against the Japanese yen given Japan’s geographical proximity.

The only other piece of new news this morning was the downgrading of the outlook on New Zealand’s foreign currency rating by Standard & Poors from stable to negative on the implications of the countries large external imbalances. The local currency ratings’ outlook remained stable at the highest level. The Kiwi Dollar dropped sharply as a result but probably more on the lack of anything else going on than a fundamental re-assessment of the currency’s value.

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The euro has strengthened in the forex markets overnight on the news that Ireland has applied for a bailout to help fund itself and save its banks. In doing so, it became the second euro member to seek a rescue from the European Union and the International Monetary Fund after Greece.

The CFDs trading markets saw the single currency touch a one week high of $1.3768 against the dollar in response whilst stocks look set for a rebound. Ireland will channel some of the money from the European Union and International Monetary Fund to banks through a “contingent” capital fund, Brian Lenihan told reporters late yesterday.

The rest of the package, which is estimated to total €80 – 90 billion, will help Ireland avoid having to sell bonds. However, the deal may not be concluded until the end of this month as the various parties are still negotiating the conditions.

The issue of Ireland asking for an EU/IMF rescue package will also remain the key factor for currency trading today since there is no key economic data on the agenda. The Euro-Zone consumer confidence data is interesting, but not really a mover for currency trading and the same is true for the Chicago Fed National activity index.

The UK economic calendar is also empty today although the markets will be keeping an eye on Wednesday’s release of the revisions and details of the Q3 GDP to see if the remarkably strong first estimate of 0.8% Quarter on Quarter growth will be confirmed.

In the US, the Thanksgiving holiday later this week means that there will be a glut of economic data on Tuesday and Wednesday. The FOMC minutes are the highlight and will more than likely show much more information about Quantitative Easing than the vote tally revealed in the FOMC’s most recent statement. Wednesday also sees the release of personal income and spending reports and new and existing home sales data.

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Earlier this week, the forex markets saw a squeeze higher on the USD catalysed by good US retail sales numbers at the close of last week but more so through the concern over Ireland tripping into USD strength.

Today the CFDs trading markets is appeased as a bailout is inevitable, ECB and IMF officials are looking into the formalities of what will be needed for the Irish economy. The euro has pushed higher on this realisation trading back up to $1.37 against the USD supported by middle-eastern buying. The key question is will confidence remain in the Euro arena- according to Citigroup Inc and Nomura Plc, the answer is a ‘no’.

They say that relief will be short-lived as attention turns to who is next and all fingers are pointing to Portugal. The Portuguese Finance Minister said that while “there is a risk of contagion”, that does not mean that the country will seek financial aid. So the merry go round could start again.

On top of the bailout plans the Ireland will also announce a 4 year fiscal plan to help steady the ship. Although Dublin insists that there is no threat to Ireland’s 12.5% corporation tax, the mood over the loss of economic sovereignty was summed up by Mary Lou McDonald from Sinn Fein who stated “Officials from the EU and IMF and any other vultures circling around this country should be told to get lost”.

Tough times ahead for Ireland and there is still a possibility that sovereign issues will continue to weigh on the euro for some time to come.

Focusing on the UK, retail sales rose for the first time in three months, by 0.5% providing a much needed boost as we approach the Christmas period. The pound has also been lifted on the news of a bailout for Ireland- the UK is exposed to Irish debt and this led to sterling weakness earlier in the week which has now been somewhat lifted.

A very quiet day ahead with no economic releases due, however there are a few speeches this afternoon from ECB, MPC and Fed officials. The speech from Ben Bernanke of the Fed will be the highlight as he steps up his defence of the latest round of Quantitative Easing for the US economy.

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The dollar’s rally to seven-week highs stalled after subdued U.S. inflation data reinforced the Federal Reserve’s case for easing. Uncertainty about Ireland’s debt crisis has helped support the dollar recently as markets remain focused on Ireland’s financial woes.

Eurozone ministers have agreed to send a joint European-IMF mission to Ireland that could prepare the way for a bailout to prevent its debt crisis spreading to other countries. Forex pairs are see-sawing as year-end book-closing has prompted a lot of short-dollar positions built up over the past couple of months to unwind, exacerbating losses in the euro. The pound could come under pressure should Ireland resist assistance given UK banks’ large exposure to the country.

The CFDs trading markets saw sterling edge up against the dollar and euro on Wednesday after an unexpected fall in jobless benefit claims and as the Bank of England showed it had held its three-way split at its latest policy meeting. Data showed the number of Britons claiming unemployment benefit fell by 3,700 in October, the first fall since July and confounding expectations for a rise of 5,000.

Separately, minutes from the Nov 3-4 BoE Monetary Policy Committee meeting showed one member wanting more stimulus, another voting for a rate hike and the remaining seven keeping policy on hold and ready to act in either direction. That was likely to reinforce expectations policy would remain on hold well into next year until the outlook for the economy became clearer.

Today capped off a busy week of new and data in the UK with strong retails sales figures of +0.5% MoM ahead of +0.2% expectations. The shopping surge that Christmas brings will as usual boosted these figures and you can expect positive numbers until January when the sales end.

It will be interesting to see how the retails sales look from February onwards as that will be key for how the UK economy evolves. Meanwhile in the US, the Philadelphia Fed survey is expected to rise to 4.5 in November from 1 in October.

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The Dollar staged a brief rally yesterday afternoon after the announcement that the Irish prime minister would be making an announcement at 5pm. I think everyone immediately thought that we were about to see the bail-out materialise, with risk immediately taken off the table and stocks, commodities and risk on currencies moving into the red.

The forex markets saw the Euro come under real pressure in the Euro Dollar pair, but Mr Cowen did not throw in the towel (although the market still thinks he will) and again said that Ireland is fully funded until July and can weather the current storm.

In a statement from the Eurogroup after the Irish PM had finished speaking, EU officials made it clear that they welcome the Irish efforts in making the necessary fiscal adjustments but that they “confirm that we will take determined and coordinated action to safeguard the financial stability of the euro area, if needed, and that we have the means available to do so”.

Mildly threatening language from normally very diplomatic blokes, which is why the CFDs trading markets believe the market based solution for Ireland is doomed.

Sterling moved higher in early trading yesterday after CPI data again showed inflation above target, triggering a letter from the Governor of the Bank of England to the Chancellor to explain the situation.

The Bank minutes from this months meeting have just been released, there was speculation of another member on the MPC voting for a rate increases which lifted Sterling again, but after the fact, the minutes showed no change in voting from last month with Sentance voting for a rise, Posen for additional stimulus and the rest for no change. Unemployment data out at 9.30 was exactly as forecast, so the next data of note will be tomorrows UK retails sales figures.

Speaking of which, US retail sales figures were double what the market expected firming up the Dollar before yesterday move up. We will also see CPI data later today as well as a large amount of data on the troubled US housing market. In normal conditions this would normal reflect in the price of the Dollar, but with Eurozone problems looming large, this data may well be ignored in the short run.

CFDs, margined forex and financial spread trading are leveraged products. They carry a high level of risk to your fund. It is possible to lose more than your initial capital outlay with these products and they may not be suitable for all investors, do ensure that you fully understand the risks involved, seek independent financial advice if necessary.

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