EUR/USD (1.3490) Jobless claims, housing permits and the homebuilder sentiment were the bright spots on the US data front yesterday. However, ‘risk-on’ is an expression that has dropped out of investors’ vocabulary in recent weeks. Against the backdrop of the eurozone debt crisis, which appeared to deteriorate even further yesterday, the upticks in the price of risky assets were short-lived. Instead, the market focus was on the rise in sovereign bond yields across the eurozone – including Germany – and the euro-era record yields demanded at a Spanish bond auction. To add to the credit woes, the Financial Times reports today on the extent to which the big four British banks have reduced lending to peripheral eurozone banks in Q3. This reflects an intensification of a trend that was already underway earlier in the year. Indeed, there is mounting evidence that cross-border lending right across Europe is in retreat. Analysts fear a credit crunch. The ECB, although it doesn’t seem to dwell on the monetary aggregates as much as it used to during the pre-crisis period, may fear one too.
The euro oscillated generously yesterday but was essentially directionless. This probably reflects a lack of short-term positions in the market. The bigger picture remains one of euro vulnerability, however, and we continue to highlight the risk to 1.3360 and then to 1.3170. A near-term stabilisation requires a move above 1.3780.
Market Bias Index
Given the news backdrop, the biases remain remarkably modest. The intervention pairs, EUR/CHF and USD/JPY, are among the closest to perceived fair-value.
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http://www.easyforexnews.net/wp-content/uploads/2011/11/GDPBD00000199444.pdf
Deutsche Bank
Fixed Income Research – Global