EUR USD (1.4160) Those searching for the reason for the euro’s sudden spike in overnight trading probably needn’t look any further than a headline in this morning’s Financial Times – ‘China to buy Europe bail-out bond’. Although it should come as no surprise to investors, as Asia’s fund managers were already eager buyers at the first two EFSF bond auctions. Nevertheless China seems to have reconfirmed its stance on eurozone investment, and euro-bears were caught off guard. The reason for their earlier confidence in selling the euro tended to revolve around the funding crisis in Greece. Yesterday the country’s prime minister called for a public consensus to implement the proposed austerity measures. An official denied reports of a snap election or popular referendum, but EU Commissioner Maria Damanaki warned that the public basically had two choices – either return to the drachma or agree with creditors on a programme of tough sacrifices. Meanwhile the US is not without its own troubles: yesterday the UN warned of crisis of confidence in the dollar. A 17- page report told of a risk of a dollar ‘collapse’ if emerging markets were to start selling the currency. Notably, the US CDS has recently tripled in value in the span of a few days.
Short-term traders were caught out yesterday, but we can’t call the euro bullish until it hurdles the 1.4310 resistance. Until then, the risk for more weakness to 1.3910 still exists.
Market Bias Index
A new all-time low in the EUR/CHF left an impression on the Market Bias Index today: the Swiss franc is perceived as distinctly overvalued.
Deutsche Bank
Fixed Income Research – Global