A busy week for the wise money markets

Last week saw significant risk aversion played out as stock markets dropped dramatically where as this week looks a little firmer. A busy week for the wise money marketsArticles in the Italian media suggest that the International Monetary Fund (IMF) is preparing a €600 billion deal for Italy in the event of deterioration in the debt crisis- this could provide market support in the early part of the week.

Further support may also come from reports in Germany that German Chancellor Merkel and French President Sarkozy are putting together a “Stability Pact” for euro countries similar to the Schengen agreement.

Nevertheless, neither story has been confirmed so as usual the prospect for disappointment is high.

The sell on risk on rallies environment is likely to persist for a while longer despite such reports.

As we end November market orders are likely to fall and liquidity is likely to thin with plenty of events and data on tap… volatility is guaranteed.

First up includes bond auctions in Belgium and Italy today and France and Spain later in the week against the background where Germany’s failed bond auction last week has added further anxiety in bond markets.

Under the spot light tomorrow will be a European Finance Ministers meeting, given the lack of steps forward on many issues especially on the subject of Eurobonds.

With risk appearing back on the menu, traditional risk currencies like the Euro and Aussie have rallied in the early part of the session.

One would expect any gain in the Euro to prove limited and weak if the European press reports are confirmed.

EUR/USD will find upside resistance around the 1.3412 level, while the risk of a downside test of support around its October 4 low at 1.3146 remains high over the coming week.

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