Euro Remains Steady as Portuguese Government Falls
	Market Highlights: Portugal's PM Resigns over Failed Austerity Measures  News and Notes from Around the Globe  Best Rates Guaranteed with XE Trade. Get a Free Account Portugal's PM Resigns over Failed Austerity Measures It’s really old news now in FX markets given that it occurred at the tail end of yesterday’s European session, but the political turmoil in Portugal that has erupted after the government failed to win support for its planned fiscal austerity package remains the story of the day.  The nation’s opposition parties combined forces to oppose Prime Minister Jose Socrates’s proposals in a parliamentary confidence vote; apparently, this fourth austerity initiative to be proposed by the government went too far in an effort to avoid Portugal’s having to accept an international bailout package.  The government’s motivations, however, were clear: it was attempting to pursue a policy path that would be politically feasible and defensible domestically, while still satisfying both the EU and the IMF that the nation was doing enough to alter the course of its debt-riddled economy.  The fact that the government has now failed means that the nation will suffer through a political crisis at a critical juncture when the likelihood of having to accept a financial bailout looks almost assured.  The challenge for Portugal, and the reason the government was pushing so hard for economic reforms, is that any money coming from the international community will come with significant strings attached (just ask the Irish, who are still attempting to renegotiate the terms of their bailout, delivered in 2010), which are likely to make the government’s proposed austerity measures look mild by comparison. Adding to the challenge in Europe is the fact that the continent’s leaders are assembling as we speak for a two-day summit that was intended to find a solution to this ongoing debt and liquidity crisis “once and for all.”  While the notion that a solution to a problem as large and complex as that which is plaguing Europe can be found in two days is almost laughable, the effort is no doubt being further complicated by the political crisis in Portugal and the fact that the Finnish government has been dissolved as well, making any treaties or pacts exceptionally difficult to finalize given that Finland most likely won’t be able to sign on the dotted line for several months.  The interesting part of all of this is that despite the political carnage raging in Brussels, the euro is actually managing to hold its value relatively well, bouncing a full cent from the overnight low to trade hands with a 1.41 handle this morning.  While the euro is certainly being aided by the fact that the USD is a hot potato that seemingly no one wants to hold, the common currency is holding up fairly well, all things considered, on the crosses as well.  That said, the market is expecting decisive action from this week’s European summit—and while the outcome will likely underwhelm markets, it will be interesting to see just how much the currency is punished as a result. News and Notes from Around the Globe The US Dollar Index continues to trade heavily in early North American trading, with equities having enjoyed positive sessions in both Asia and Europe to start the day.  Commodities remain firm, oil continues to trade with a $105 handle, and the firming CRB index of commodity prices continues to provide support to both the commodity currencies as well as the energy complex.  European flash PMI figures for both services and manufacturing across a host of countries were largely mixed, with no show-stopping surprises provided, an occurrence that likely contributed to the relative stability of the common currency through the European session despite the ongoing fiscal woes. Retail sales in the UK came in with a larger-than-expected 0.8% decline versus the market’s consensus estimate of only a 0.5% retracement, sending the pound reeling and relegating it to the role of Underperforming Major Currency of The Day with a two pence sell-off.  Cable is still moving lower, having breached the 1.6150 figure, and has certainly developed some downside momentum on the day. As mentioned, the US Dollar Index has failed to really make up any considerable ground despite the difficulties on both sides of the English Channel this morning, partly due to the fact that Durable Goods Orders stateside missed the mark rather dramatically this morning.  Though there was a somewhat positive signal from Weekly Jobless Claims Figures, which have shown a slight improvement over the last week, the 0.9% drop in Durable Goods Sales against an expected 1.2% advance has been difficult to explain away.  If there were any USD bulls out there at all, it would be interesting to see how such a figure could be spun. The Canadian dollar continues to grind lower, drawing support from both equities and commodity prices on the session as the market’s risk tolerance remains surprisingly robust given both the data delivered and the drama unfolding in both Lisbon and Brussels.  USDCAD is again testing the 0.9750-mark this morning, with a breach of that support threshold likely to open the door to a re-test of the 0.9660 area that was seen earlier in the month. By Mark Frey, Regional Director, Corporate Canada