Improved Sentiment on Believes EU Leaders will Boost Efforts to Solve the Debt Crisis

Optimism was seen spreading through the Asian and European markets today on hopes Europe will boost efforts to cure the debt crisis during Friday’s EU summit, after S&P warned it might downgrade 15 European nations and the EFSF.

Investors are hoping that officials might come up with a convincing plan for solving the debt crisis as pressures are mounting, which is sustaining optimism and increasing demand on higher yielding assets.

Sentiment found additional support from the parliamentary approval to Greek Prime Minister’s 2012 budget, while Australia’s economy grew on a yearly basis more than expected by 2.5% from 1.4% a year earlier.

Yet since investors are anxiously waiting for the European summit, the ECB’s rate decision tomorrow and some key economic data from China later this week, caution will be seen among traders, which could keep trading limited.

Optimism over the outlook of the EU debt crisis brought gains not only in Europe today but in Asia as well, where Nikkei 225 ended 1.71% higher while Hang Seng was up 1.58%. In Europe FTSE 100 rose 0.50% while DAX rose 0.74%.

If EU leaders will be able to find a final solution to the debt crisis then this wave of optimism might continue, increasing demand for riskier higher yielding assets, however if the summit will disappoint, it will weigh down on confidence and demand on safe haven will be reignited.

Markets will be eyeing today Germany’s industrial production expected to weaken in Oct., while in UK the manufacturing production fell more than expected to -0.7% in Oct. The US will be releasing its consumer credit and the EIA crude oil inventories.

The euro is enjoying today some bullish momentum, trading as of this writing around the 1.3410 level, while the pound is trading to the upside around the 1.5615 level. The USD is weakening trading around the 78.47 level. The yen is almost unchanged around the 77.68 level.

As the US dollar weakened amid rising optimism in markets that EU leaders will take strong actions to ease the European debt crisis, commodities managed to find some support, where oil is trading around $101.60 while gold is trading around $1730.10.

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