EUR/USD (1.4195) Eurozone members France, Belgium, Italy, and Spain have imposed a 15-day ban on the short-sale of financial stocks, effective this morning. The ‘French resistance’ was tested, according to that country’s chief securities regulator, and ‘this is our response’. However other Union members were not persuaded to go along, and we think for good reason. The bulk of this week’s selling of European financial stocks was caused by the liquidation of long-term capital positions, in reaction to deteriorating global growth forecasts. That kind of investment is not likely to return anytime soon. The shortselling ban, a reaction to a turbulence that has already passed, will perversely add volatility to the market by sapping near-term liquidity. Nevertheless, politicians and central bankers are keen to show that they can somehow react to the crisis, but the market takes a dim view of official reaction. Now Germany’s Green Party is clamouring for a ban on CDSs, and the Swiss National Bank appears to be flooding the market with liquidity in a bid to stem the Swiss franc’s rapid appreciation. Regarding the latter, there is even talk at the Bank of pegging the CHF to the EUR. Before the crisis started, such an operation would have been decried as an encroachment on free markets; now it seems as if officials would have a free hand on any measures could ensure growth.
The euro has established a technical consolidation zone between 1.4110 and 1.4415, where a breach of the upper border would accelerate gains. The key support lies at 1.4050, and interim supply stands at 1.4290.
Market Bias Index
The SNB was apparently successful yesterday: traders’ perceptions of the franc’s overvaluation diminished significantly. Still, the EUR/CHF and the USD/CHF carry around four percent in overvaluation bias.
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Deutsche Bank
Fixed Income Research – Global