EUR USD (1.2115) Although developments in the eurozone debt crisis had become increasingly worrying throughout last week, market commentators could not help but notice the euro’s resilience. For five consecutive days it had demonstrated a remarkable ability to recovery from a mid-session sell-off. Indeed, the rebounds were so reliable we suspect short-term traders had begun buying in anticipation of it without knowing where the demand was coming from. By the end of the week, such short-term bidders were the only buyers. Even without any additional negative news, we believe the euro would have sold off ahead of the weekend. The headlines concerning fresh woes in Spain’s regional finances, a debt downgrade by rating agency Egan Jones, and a renewed spike in Spanish yields, simply steepened the single-currency’s decline. The euro had anyway failed to overtake the 1.2365 hurdle we saw as necessary to secure a near-term stabilisation, so an end-of-week slide accompanied by rising implied volatility was always the risk. In the meantime, the euro has undercut the initial demand level and is set to pursue its decline to 1.2010. If that is broken, one would have to anticipate an immediate continuation to 1.1860. To the upside, rebounds will meet leftover supply already at 1.2235.
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Deutsche Bank