European Banking confidence key to EUR/USD
UPDATED NOV 25, 2010 7:00:00 AM
Weak European banking confidence weighing on EURUSD: Whereas the Greek financial crisis was a sovereign debt issue, this time around the Irish crisis and fears about Spain centre on both nations’ banking sectors. This is being reflected in the Eonia rate(European inter-bank lending rate). This rate hardly moved during the Greek crisis, but it had a large up-move until November as monetary conditions in the Euro-area started to normalise. A stronger Eonia rate actually reflected confidence in the banking system. But since the Irish crisis has reached boiling point, the Eonia rate has fallen sharply, as you can see in the chart below. This reflects falling confidence in the European banking system and a reluctance for banks to lend to each other – forcing Ireland and Spain’s troubled lenders [...] Continue Reading ...
Is the euro/risk relationship off?
UPDATED NOV 25, 2010 6:00:00 AM
Early signs that asset classes are moving together: In recent days asset classes have become more positively correlated. The chart below shows the S&P 500 (white line), Dollar index (orange line), Commodity Index (yellow line) and US 10-yr Treasury yields (green line). Typically bond yields move inversely to the dollar and when the dollar is weak stocks and commodities rise. However, yesterday, the dollar rose along with stocks, commodities and bond yields. This was most likely due to the stronger tone of US data, including personal spending for October, which rose by 0.4%, higher than the 0.3% increase in September. After a sharp flight from risk during the first half of the month (see the strengthening negative correlations between the dollar and stocks and commodities), this [...] Continue Reading ...
LONDON SESSION: A slow grind lower for the euro
UPDATED NOV 25, 2010 6:00:00 AM
Another day, more weakness in the euro. But we are not seeing a repeat of the extreme moves we witnessed earlier this week, instead the single currency seems to be on a slow grind lower. The market remains nervous about the problems still engulfing Europe and peripheral bond yields continue to trend higher. Most worrying, is the sharp surge in Spanish bond yields. They have risen more than 100 basis points since the start of the month and are currently trading above 5 per cent. Fears seem to be settling on a potential Spanish bailout exceeding the size of the current stabilization fund, throwing a possible rescue of the Iberian nation into chaos. Spanish authorities continue to deny that they need a bailout, and its financial position is in better [...] Continue Reading ...
ASIA SESSION: Markets Calm Ahead of Holiday
UPDATED NOV 25, 2010 1:30:00 AM
With the European debt crisis remaining in the forefront of investors’ minds, the Euro remained hobbled in a holiday thinned market. Earlier gains in US equities that were sparked by better than expected employment data helped boost the dollar and send the EUR/USD to fresh two month lows near 1.3283. With a growing anxiety that the debt debacle that just struck Ireland could spill over to Portugal and Spain, traders remained hesitant to buy the European currency, particularly into a holiday weekend. Concerns of a possible escalation of tensions in the Korean Peninsula also proved to be a detriment for risk appetite, keeping the EUR/USD between 1.3360 and 1.3310 on the day. The AUD/USD saw the only significant move of the session, dropping from 0.9850 highs to lows near 0.9760, [...] Continue Reading ...
Buying AUD/USD on the Current Pullback--Cancel
UPDATED NOV 24, 2010 4:00:00 PM
Buying AUD/USD on the Current Pullback--Brian Dolan, Chief Currency Strategist Weekly Strategy update: the AUD/USD strategy from last week was never triggered and we would now cancel this strategy....In light of what looks to be further development of the H&S pattern, we would now prefer to be selling remaining strength in the 0.9900/1.0000 area or on a break below the 0.9650 recent lows, ultimately looking for a move to the 0.9250/9300 area in coming weeks. AUD/USD has been knocked lower as part of the broader USD rebound and EUR decline. Word out of China that it may institute price controls or other forms of monetary tightening to combat inflation raised concerns it may undermine demand, which has seen commodity prices decline sharply in recent days, which also weighed on the
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