EUR USD (1.3205) Last week investors managed to push the euro to the highest point (fractionally) in the last three weeks. But the sentiment towards the euro remains ambiguous. With Spanish 10-year bond yields rising again, the Italian PM warning about renewed contagion, and some prominent opinion-makers seeing the German Chancellor’s reticence to increasing the firepower of the pan- European rescue vehicles as capable of re-inflaming the crisis. What seems to irk euro investors the most is what they perceive to be EU officials’ reactive, piecemeal response to the crisis. In this case, a failure to extend the leverage of the rescue vehicles is seen as a liability for the still fragile eurozone. In contrast, many observers, including former presidential advisor Larry Summers, see as premature any shift in US policies before certain thresholds in inflation and employment are reached. Summers recommends that Fed make ‘contingent commitments’ that provide clarity on near-term expansion and medium-term prudence. In short, he, like Bernanke, favours keeping the monetary throttle open until either the global financial crisis is definitively over or until inflation constraints make it untenable.
Our key upside hurdle at 1.3295 was tested on Friday. As before, a break is required to open a potential to 1.3490. The best nearby support is still at 1.3110.
Click here to read the full report: Daily forex 03.26.12
Deutsche Bank