EUR/USD (1.3520) The resignation of Juergen Stark from the ECB has gobbled up column inches in the weekend press, but it would be wrong to blame the news for the euro’s decline. By the time the news agencies ran the story, the euro had already registered two-thirds of he day’s losses. However, the suggestion that the executive board member departed because of differences of opinion over the Bank’s bond buying has brought much greater scrutiny to the policy. While, in heory, his departure ought to make its pursuit easier (his proposed successor, Joerg Asmussen, is perceived as less hawkish) the question remains whether the ECB will want to step up an activity that has proved so divisive. Following the resignation, traders’ attention urned to the G7. Although no official communique was planned, observers nonetheless drew no reassurance from a statement expressing a willingness to take “all necessary actions”, or from the knowledge that the finance ministers and central bankers had spent he summit almost exclusively on the eurozone problems.
The generalised euro selling on Friday filled all of the downside risk we previously indicated – stopping only at 1.3630, which marked the best nearby demand. This morning, even this was undercut, meaning hat the immediate risk now extends down to 1.3090. Nearby supply is weak; even 1.3725, which captures Friday’s greatest concentration of rading volume, was only actively dealt for little more than an hour.
Market Bias Index
The US-dollar’s perception of overvaluation has stretched even further, led by an unprecedented extreme in the USD/CHF. Remarkably, the USD/JPY remains pegged at perceived fair-value.
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Deutsche Bank
Fixed Income Research – Global