EUR/USD (1.3775) The euro slid almost 200-pips early on Monday after German finance minister Schäuble announced that the October 23rd summit will not present any definitive solution to the eurozone debt crisis. Although the markets had not expected a conclusive solution from the weekend meeting, hopes of a big step forward towards the crisis resolution were certainly priced in. Now investors learn that there may only be a small step and that the crisis could roll on unabated. However, we believe that Merkel-Sarkozy assurances for a comprehensive package were not the only catalyst for the euro rally, or for the parallel boost to the zone’s equity markets. They may have given the market wings over the last few days but they were not the cause. That said, there is no denying that market expectations raised by the Merkel-Sarkozy headlines were high, and the disappointment of the latest statements have undermined these hopes and curtailed the risk appetite. Add to that EFSF’s Regling’s announcement the fund will not receive a banking licence (but would be leveraged), not much remains from last week’s headlines.
We believe however, that the weakness in the euro is the product of fresh short selling and may, therefore, be short-lived. There are probably also some existing bears who are relieved that the euro is again falling. However, we adhere to our target of 1.4150. The risk-limit remains at 1.3725.
Market Bias Index
From yesterday’s euro correction a quartet of fairly-valued currencies has emerged. This includes EUR, USD, JPY and GBP.
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http://www.easyforexnews.net/wp-content/uploads/2011/10/dfo_111018.pdf
Deutsche Bank
Fixed Income Research – Global