EUR USD (1.3150) Higher volatility last week, amid a steep drop in the euro, indicated popular concern that the single-currency might fall out of the range that has dominated over the last two months. Onemonth implied volatility hit three-week highs on Thursday as investors presumably insured themselves with options ahead of the holiday weekend. With Spanish bond yields (and spreads over Bunds) rising over the course of last week, market participants seemed to fear a reinflammation of the crisis in Europe. In the US, unemployment continues as a frontline issue. Forecasters’ recent adaptation to higher non-farm payrolls was tested as lower-than-expected numbers were issued Friday. Furthermore, indications that when work is obtained, is of low quality, increases the cause for concern. For instance, according to a 2011 survey by the BLS, as many as 10.5 million Americans earned less than $11.000 per year, the highest number in two decades. This news may have contributed to the more negative attention given to the jobs data since Friday, although they were perfectly in line with the recent comments by the Chairman Bernanke. Attention has nonetheless shifted back to the US and to the Fed’s likely actions on QE. The euro has not recovered Thursday’s drop and is vulnerable to a fall to 1.3025. Below there it would find no good support ahead of 1.2805. To the upside, 1.3165 and 1.3235 mark the first hurdles.
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Deutsche Bank