EUR USD (1.2535) Even as the IMF’s chief reiterated the significance of tax collection and tourist revenues for the Greek economy, it is any hint at the colour of the likely coalition after next month’s election that causes markets to pay attention. Spain also managed to unsettle investors as it revealed that Bankia would need €19 billion in rescue spending, causing the spread between German and Spanish 10-year bonds to widen to a new euro-era extreme. In short, the eurozone crisis is again overwhelming investors and the downward pressure on the euro remains high. In contrast, ahead of the weekend, the US economy presented relatively modest dilemmas. Although the Thomson Reuters Michigan index showed a surge in consumer confidence to a four-and-a-half year high, the President of the New York Fed reiterated that the slow recovery in the US job situation still makes a strong case for further easing. The US, although attracting safe-haven capital flows from the eurozone, reflects an economy that is fragile and it could easily be upset by a worsening crisis in Europe. These factors – the preponderance of short EUR/USD positions already in the market, and the limits in the ability to price in bad eurozone news without simultaneously pricing in bad US news – are containing the euro’s decline. As earlier, the euro remains on track to fall to 1.2490 and, below that, to 1.2350. Short-term stability can now be expected beyond 1.2695.
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Deutsche Bank