EUR USD (1.2290) The USD-index is pursuing its retreat from last week’s year-high. The correction resumed yesterday after the publication of disappointing US retail sales data. With a Bernanke testimony imminent, it was clear that any weak data would refuel expectations for an announcement on QE3. This morning, the euro climbed back above $1.23, i.e. back to the post-payrolls level, when investors seemed resigned to the view the figure was probably not bad enough to provoke a policy response. We remain of the opinion that the market is underestimating just how high the bar is for QE. In another development, the WSJ reported yesterday about a change of heart at the ECB on the question of forced write-downs of senior debt at distressed Spanish savings banks. Formerly, the Bank had insisted that such bondholders should be spared losses. Mario Draghi talks about burden-sharing between taxpayers and bank creditors. However, as these senior creditors are likely to include domestic pension funds, the losers are again taxpayers. In fact the burden-sharing is between consumption in the present and consumption in the future. As we described last week, this distribution is the most psychologically favourable if one does not want to destroy growth prospects with austerity measures. The first good supply point is now at 1.2330 and a break there would be an initial positive sign for the euro. To confirm a lasting stabilisation, though, 1.2455 must be overtaken.
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Deutsche Bank