EUR USD (1.3300) The decline in bond yields in Spain, France, and particularly in Italy (where it is reported that as much as one quarter of the LTRO2 money went) testify to the success of the ECB’s lending operation. The development added to the general sentiment of increasing clarity on the eurozone debt situation. However, investors recognise that many economic hurdles lie ahead, not least of which, the zone’s growth and unemployment outlook. Yesterday’s Eurostat figures showed joblessness at a new euro-era high of 10.7 percent, even before many austerity measures have begun to bite. In addition there is a widening gap between north and south in employment trends, which some analysts predict could even undermine solidarity. However, the most fertile ground for a macro-economic shock, in traders’ opinion, is not Greece, but crude oil. Prices already jumped to a new high on the back of unconfirmed reports of a pipeline explosion. In addition, the tensions surrounding Iran remain an on-going theme. As a consequence, we suspect that traders have preferred to move back into the US-dollar since late-Wednesday and that the euro has seemed to them to be the most convenient counter-currency. The current consolidation is between 1.3490 and 1.3185. As long as the euro stays above 1.3285 (held yesterday), we maintain a positive outlook and favour an eventual upside exit. Below that support, however, our opinion would reverse.
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Deutsche Bank