EUR/USD (1.3290) With Ben Bernanke highlighting the eurozone turmoil as a significant source of stress in global financial markets and also for the US economy, the negative spotlight remains on the tortuously slow decision-making process in the EU.
Despite similar (if not worse) debt and growth problems in Japan and in the US economic, Bernanke’s views echo the prevailing market impression that the European sovereign debt problems, although solvable, have to be constantly pulled out of political logjams that decision making among 17 member states inevitably entails. The EU finance ministers attempted to convey a sense of efficiency to the markets when they said that capital positions of European banks must be urgently reinforced and the recap measures have to urgently co-ordinated. Unfortunately this relief-inducing measure failed again to positively impact the euro as members reopened the discussion on the Greek haircut agreed to in July – yet another example of the trait market participants find so unsettling.
We believe that these contrasting perceptions of decision-making around the globe will ultimately result in an even lower euro and we currently see the risk for a slide to 1.2910/60. In case of recovery to 1.3365, we would embark on a bearish strategy with this lower level as a target, and with a risk-limit set at 1.3415.
Market Bias Index
The only remarkable move today is in the CHF which has regained the extremes of perceived undervaluation reached early last week.
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Deutsche Bank
Fixed Income Research – Global