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Market mood has twisted
Publication date: 5 July 2012
Author: Michael Derks, FxPro
Tagged with: Michael Derks
Suddenly, just when all seemed so calm in currency markets, the mood twists violently.
Not surprisingly, it is the single currency that is again in the dock, sinking to a low of 1.2377 from above 1.25 earlier in the day. European policy-makers ought to be incredibly disappointed by the price action, and over the past couple of days especially. In effect, the euro has given back all and more of the boost it received after last Friday’s more positive than expected EU Summit announcement. Today’s sudden plunge of the euro is something of a surprise in that a 25bp rate cut from the ECB was widely expected. Also hurting the single currency and aiding the dollar were two separate pieces of US employment data which both came out on the stronger side of expectations. Ahead of tomorrow’s payrolls numbers, a number of traders have clearly decided they do not want to be short dollars. Weighing on the euro as well was an assertion from Frau Merkel that she did not take on any additional commitments at the EU Summit, mean any shared liability. All at once, many are questioning what exactly was agreed. Although the price action of the past few days has been bad, it is not yet terminal. So far, the euro is still comfortably above the low of 1.2288 recorded on the first day of June. Those of a bearish persuasion towards the euro will want to see this level taken out soon to justify their negativity.
At the same time as the euro is suffering, also notable is the renewed appetite for the dollar. For instance, the dollar index is up by more than 1% today, a big move. At 82.80 currently, the bulls will want to see last month’s high of 83.54 taken out to be really convinced we are in new territory. Should tomorrow’s payrolls figures reaffirm the positive jobs news contained in today’s releases, then the need for additional QE in the near term will be diminished.
Elsewhere, the high-beta currencies are unsure how to react. The Aussie, for example, jumped to 1.0330 immediately after the China rate-cut announcement, but has since crawled back into its shell and is now back down at 1.0275.
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