EUR/USD (1.3840) An ebullient euro, which has risen 5.6% just this month alone, was projected higher as shorts were squeezed on Friday. The move has left many market participants unprepared. Puzzled by the new trend these traders now note that one has to consider the very real possibility that the EU summit hits some snags which would lead to a sharp fall back. They also note that the euro might struggle to extend gains because investors may be reluctant to go long before details of eurozone resolution are known. Some further dismiss the rally as having gone ‘too far too fast’. Indeed, in the absence of more positive headline coming from the eurozone, it is likely that some will point to Trichet’s interview on Sunday with French radio proposing a structural change in EU treaty as an argument to explain the rally. In reality, Trichet recommended treaty change, including provision of more effective surveillance, as long ago as last Wednesday. Meanwhile, taking a cue from the European mass protest against the banking industry this weekend saw German finance minister now contend that the private sector should take a larger haircut on Greek debt, of as much as 50-60 per cent. This is a volte face from a month ago when he was voicing the impossibility of letting Greek default. This should show that EU17 thinking has evolved.
We adhere to our bullish strategy with a short-term target of 1.4150. The risk-limit can now be raised to 1.3725.
Market Bias Index
The apparently relentless AUD rally is likely causing it to be increasingly perceived as overvalued in traders’ perceptions. In bias terms, it is even challenging the CHF (perception of undervaluation).
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http://www.easyforexnews.net/wp-content/uploads/2011/10/dailyforex_20111017.pdf
Deutsche Bank
Fixed Income Research – Global