MidSession Review: Has the Spanish Overhang Been Removed?

The euro touched a one-month high against the dollar and Spanish government bond yields fell in the European morning session as Spain kept its investment-grade debt rating.

The euro was up 0.52 percent at $1.3121, having earlier hit $1.3125, its highest level since September 17, while Spanish government 10-year bond yields dropped 24 basis points to 5.57 percent, Italian peers dropped 11.7 basis points to 4.815 percent.

Looking at equity benchmarks it looks like the Moody's verdict removed the overhang onto the Spanish market: the Ibex rose  1.81% to 8,084.30 leading gainers followed by the Italian Ftsemib which rose 1.42% to 16,212.74, the German Dax was the laggard up 0.26% to 7,395.43 while the broader Stoxx50 rose 0.76% to 2,567.33.

But caution is needed ahead of a meeting of European leaders in Brussel on Thursday and Friday due to the potential for public disagreement over the next steps to undertake to resolve the Euro 3-year old debt crisis.

As per Reuters report: the two-day summit, the fourth among the 27 EU leaders this year, is meant to focus on efforts to establish a single supervisor for the euro zone's banks, as well as longer-term plans for closer integration of the currency union.

The euro move sent the dollar to its lowest level in a month against a basket of major currencies: the ICE dollar index , which measures the U.S. unit against a basket of six major rivals, fell to 79.145 from 79.371 on Tuesday. The dollar tends to fall as risk appetite rises, while currencies such as the Australian and New Zealand dollars, and the euro, often rise. The Australian dollar traded at $1.0323 versus the dollar, up from $1.0269 late Tuesday. The New Zealand unit erased an earlier gain to fall 0.1% to 81.60 U.S. cents. The British pound meanwhile, jumped after data showed the U.K. unemployment rate unexpectedly fell to a 15-month low at 7.9% in the three months ending in August.

The weaker greenback, which makes dollar-priced commodities more attractive for buyers holding other currencies, supported precious metals, with spot gold rising 0.3 percent to $1,752.49 an ounce. But Brent crude oil fell on global economy worries ahead of the data from China. Brent futures were down 33 cents at $113.67 a barrel, while the November contract, which expired on Tuesday, closed 73 cents lower at $115.07.

Meanwhile in US: Bank of America Corp, the second- largest U.S. lender, said third-quarter profit dropped 95 percent on litigation expenses and an accounting charge tied to the firm's debt. Net income fell to $340 million, or 0 cents a diluted share, from $6.2 billion, or 56 cents, a year earlier, according to a statement today. Analysts surveyed by Bloomberg were predicting a loss for the quarter, and the shares rose in early trading.

From the Macroeconomic calendar in US the housing market will take the spotlight as U.S. new-home construction probably rose in September to the highest level in four years. Builders broke ground on 770,000 houses at an annual rate, up from 750,000 starts in August and the most since October 2008, according to Bloomberg estimates. The Commerce Department will release the data at 8:30 a.m. in Washington.

Traders will look at the US housing market for confirmation: past readings showed date the market has already bottomed and it was on the path to picking up again, at that time we were asking if the housing market alone was able to sustain the whole economy, the question is still un-answered therefore get ready to take another  piece of information to support or to undermine your trading hypothesis.

We prefer to study our hypothesis without a position on,  a lesson we learned in the past: you do not need to always have a position on to be a trader.

Have a great one.

Originally posted at www.77sigmatrading.com