Wednesday 5th May……It’s all about Greece and their massive fiscal problems and since today possible downgrade of Portugal. Today there is a general strike in Greece as chancellor Merkel tries to win over the German parliament and as the Greek PM tries to push through the severe austerity measures in the Greek parliament. Contagion is the name of the game and investors are running for cover as they ditch the Euro and stocks. It’s not over yet by a long way….follow the Trends and use appropriate money management discipline.

Euro extends current decline as Moody’s put Portugal’s Aa2 debt rating on watch for a possible downgrade. The company’s statement said that the rating action “reflects the recent deterioration of Portugal’s public finances as well as the economy’s long-term growth challenges.” Also, “increased risk discrimination in the financial markets may raise Portugal’s financing costs for some time to come.” EUR/USD drops through 1.29 level while risk averse sentiments also send the greenback higher against other major currencies.

ECB council member Weber said that there is threat of “grave contagion effects” for other member stats in EU and increasing “negative feedback loop effects” on capital markets. German bund yields dropped to 15 month low on concern that the EUR 110b bailout for Greece would fail to stop spread over to other countries. Yield on 10 year Greek bonds rose further above 10% and spread with German bund yields is closing 700bps again. Yield on 10 years Portuguese bonds jumped above 5.8% while that on Spanish bond also stay firm above 4%. CDS on Greece, Spain and Portugal also rise further today.

Sterling strengthens against Euro as polls showed Conservative Party may come closest to winning tomorrow’s general election in UK. Also, there are speculations that Conservative Party may be able to form an alliance with Democrative Unionist Party. In any case, traders are betting that whoever win the election will deliver a plan to reduce the record budget deficit. However, we suspect that selling pressure on sterling will restart after the election even risk is cleared.