httpvh://www.youtube.com/watch?v=znVW-_eP1zs

Risky assets were kept on a short leash on Friday as the all to familiar concerns over the sovereign debt of some member state gave market participants the chills. The focus was primarily on Ireland after a report by Barclay’s, later picked up by the Irish Independent, suggested that the country would have to go to the IMF for a bailout if conditions worsened.

This led the ECB to intervene in an Irish debt auction in order to maintain some semblance of confidence and reinforces the structural issues that Europe is dealing with. In the meantime the cost of Irish CDS, insurance against an Irish default, rose to a record level while the yield on its debt also spiked.

It wasn’t just European movements that were causing investors to wobble however as an important measure of US consumer confidence fell to its lowest level in a year. Combine this with gold hitting another record high ($1280 an oz) and you have an atmosphere of risk avoidance.

This caused the USD, JPY and CHF to remain strong with the euro taking a fair battering. GBPEUR had almost broken into the 1.18s when the Irish news came filtering through and was quickly back towards 1.20. GBPUSD was making a 3 week high at 1.5720 before chopping lower in the afternoon session. Depending on the open we would expect these levels to stay intact today in the absence of any major data. In other words it should be a quiet day as long as Ireland doesn’t sink into the sea.