EUR USD (1.3130) After many punishing days for asset markets, there was a palpable desire to see some correction yesterday. A rebound in equities, peripheral bonds, and the euro were in unison with comments by Benoît Coeuré suggesting a bond purchasing programme in Europe ‘still exists.’ The ECB executive board member responsible for market operations was speaking in Paris when he described the concern for Spain’s fiscal situation as unjustified and this lent support to the government debt. Mr Coeuré chastised the markets for not following fundamentals. These comments led to a jump in the euro to the day’s high before a downward correction in the space of a few hours, as traders reconsidered the event’s importance. Perhaps they should not have dismissed the comments quite so quickly, though. The short history of the Draghi-led ECB has been marked by bolder and swifter policy action (an immediate rate cut, LTROs, collateral rule changes) compared to his predecessor. So the former, very modest bond purchase programme might not be the right reference point for what might now come. The quick euro rally faltered literally at the very first hurdle, 1.3165, a supply level that we had labelled as rather weak. This is not a good sign for the euro. We, therefore, still see it as vulnerable to a fall to 1.3025 and, below there, to 1.2805. To the upside, the best supply is at 1.3235.
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Deutsche Bank