Europe’s downgrade drives down market gains

central bank meetings lined up for this week.
The question on everyone’s mind is: Can the ECB improve market sentiment and drive the single currency to higher ground on their December 8 meeting ahead of the EU summit on December 9?

The ECB will meet to address their rate and growth outlook to at least cushion investors in the eurozone. The euro area is still going to be a key driver for risk appetite.
The ECB president Mario Draghi and his monetary committee looks set to cut rates by 25 basis points according to market watchers, if this happens that means it will reduce yield on the euro against the dollar.

The euro will likely fall against the dollar but that doesn’t change the fundamentals that the whole fiscal integration still needs to be addressed by certain politicians within European countries. Euro fluctuations are showing a general nervousness among investors as we are seeing most investors selling the euro on any rallies because of market sentiment that seems to favour the dollar against the euro.

At the moment much is expected from the ECB meeting and the EU summit and it seems the market is optimistic that a near term solution can be agreed on.
The euro advanced on the backdrop of positive sentiment after Germany and France said they want a rewrite of the EU’s governing treaties to tighten economic co-operation in the region.
The euro gained to trade at US$1,3457 to the dollar and rose by 20 pips to trade at 104,68 against the yen, but then reversed earlier gains against the dollar after Moody’s downgraded five European countries to leave it trading at US$1,3367. The dollar weakened by 30 pips to trade at 77,78 yen. Germans should change their attitude if they are going to save the euro at all because they have so much to lose if the euro goes bust.

The market has welcomed the idea reached by the two countries and believes it is a step in the right direction and hope they will speed up the process. The dollar index fell by 50 pips to 78,297; the gauge tracks the greenback against six major trading partners.

In London, the pound strengthened against the dollar as it rose by 50 pips to trade at US$1,5674 as euro-area leaders raised optimism that they would ease debt issues.
The pound appreciated against the yen to trade at 122,05 and advanced to 85,76 pence per euro. The Bank of England is set to meet tomorrow and will most likely increase liquidity to support the economy to better growth levels but that will definitely hurt the pound in the medium term. The pound has been mute to events happening in the eurozone as internal issues having been weighing so much on it.

In Japan, a stronger yen has made it difficult to justify projects in Japan according to the CEO of Renault and Nissan Mr Ghosn.
In the South Pacific Ocean, the Australian dollar and the New Zealand dollar advanced on positive developments in the eurozone ahead of the ECB and EU summit meetings scheduled for the tomorrow and Friday.

The announcement increased demand for high-yielding assets but Moody’s downgrading at 1400hrs Zimbabwe time did the damage for all growth-related currencies.
South African Markets
The rand rose as speculation that European leaders will make some progress in solving the debt crisis as this buoyed demand for riskier assets. Risk appetite has improved driving down risk aversion meaning everything is against the dollar and hoping it will not result in a head fake in the rand.

The rand had earlier risen to 7,990 against the dollar but fell after Moody’s downgrade weighed so much on the rand. The rand declined to trade at 8,0825 against the dollar and reversed earlier losses against the euro to trade at 10,8225.

Commodity Markets

At the moment we are seeing gold trend line slowly going down ever since the market took on board the idea that Angela Merkel, the Germany leader, suggested to expect more from Europe than less.
The bullion declined by 2 percent to trade at US$1 714,20 an ounce. Gold continues to lose steam ahead of the ECB and EU summit scheduled for this week. Crude oil was little changed as it traded at

US$100,47 a barrel. Tension in Iran continues to put pressure on oil but with supply fears in sight crude oil could jump above US$105 per barrel.