EUR USD (1.3030) The combination of a quadruple witching expiration and the absence of an EU summit at the weekend, ensured low volatility on Friday. But it was no respite for the euro which continues to feel pressured by impending rating downgrades and several high-level commentators dwelling on eurozone-breakup scenarios. In the sovereign bond markets, the falling eurozone twoyear yields showed that investors expect the banks to use the new longer-term lending capacity of the ECB, which comes into effect on Wednesday, for the purpose of buying notes. Perhaps, this persuaded ECB’s Draghi to reiterate in a Financial Times interview that the new facility is ‘obviously not at all an equivalent to the ECB stepping up bond buying’. He admitted, however, that since banks are completely independent to decide how to use the money, one of the things they could do is to buy bonds. Back in 2009 too, banks used the ECB’s one year facility to buy sovereign debt, but they did it in an environment that was at least perceived as considerably less risky than now.
Although many traders are in a position-squaring mode, some reckon that there is enough time left in 2011 to push the euro to a new yearlow (below 1.2860). We continue to see euro with a near-term risk to slide to 1.2885/00. To the upside, the first tough hurdle is now slightly higher at 1.3140.
Market Bias Index
The euro continues to lead the bias – perception of undervaluation – principally against the US-dollar and the yen.
Click here to read full report:
http://www.easyforexnews.net/wp-content/uploads/2011/12/GDPBD00000201431.pdf
Deutsche Bank
Fixed Income Research – Global