Summary: The Euro fell through an important level at $1.31, and pierced its 200-day moving average, as investors continue to fear the fallout from the Euro-zone sovereign debt crisis. Fresh warnings and downgrades greeted the market following the weekend, and the Euro fell to a series of fresh all-time lows against the Swiss franc, with the Swissy along with the USD and JPY benefitting from safety flows.
Main Story – EUR Suffering From Credit Rating Woes
Moody’s remained on the warpath, after sending the Euro lower last week by slicing Ireland’s credit rating 5 notches and warning Spain and Greece of possible downgrades. Today, Moody’s downgraded a number of large Irish banks, and gave a warning that a swath of Spanish banks also could face downgrades. That triggered fresh worry over the euro-zone’s fiscal footings. We even heard that the AAA credit rating of France may be in danger, along with another country not usually included in the weaker nations – Belgium.
For instance, the cost to insure French government debt – credit default swaps – have trebled (or have climbed by three) this year to about 102 basis points on Dec. 17 which approaches the record 105 basis points reached on Nov. 30.
For Belgium, the country’s public debt is nearly 100 percent of its gross domestic product, while 65 billion euros ($87 billion) of its national debt is due to mature next year. Politics isn’t helping Belgium. S&P saod earlier this month that the “prolonged domestic political uncertainty poses risks to its government’s credit standing,” when it cut Belgium’s outlook from “stable” to “negative.”
We also walked away from the EU Summit last week with just an agreement to form a permanent sovereign-debt resolution mechanism after 2013, but failed to expand the current bailout fund or end stresses over the common currency’s structure. Also, there was no agreement to issue join euro bonds.
All in all, many factors for us to sell the EUR to start this week.
EUR/USD
Let’s have a look at the EUR/USD. For the most part we consolidated overnight, but importantly remaining below the old level of support now turned resistance at 1.3180. It wasn’t until NY trading that we saw a move downward, as we breached 1.31 shortly.
That also was a break of the 200-day moving average and could cause sellers who base decisions on technical factors to step up their selling of the common currency. We pushed below the 200-period MA in late November as well. The breach of $1.31 means the euro is now vulnerable to a drop to $1.3060, a level last seen on Dec. 2 and below that 1.2970.
EUR/CHF
The Swiss Franc took the brunt of Euro weakness, as it sliced through our pivots formed last Friday, and we pushed to a fresh record low at 1.2634. The euro’s drop against the Swiss franc fueled some speculation the Swiss central bank could step into currency markets, exploiting thin end-of-year liquidity to halt the currency’s rise. There have been no overt signs of the Swiss National Bank in currency markets, but some strategists were on guard. The Swiss central bank likely will tolerate a move in the euro down to 1.25 before we consider possible intervention.
USD/CHF
The USD/CHF piggy-backed on the move in the EUR/CHF, and we the Swissy gain against the Greenback. We bounced down of an important level at 0.9720, which was our old level of support (from Dec5th) but now acts as resistance. We also remain coffined in a sideways range between 0.9720 and 0.9560.
GBP/USD
Looking at the GBP/USD, we see it rallying overnight a bit, cutting into the sharp losses from Friday, but after hitting the 61.8% retracement of the swing from 1.5650 down to 1.5450 around, we see the pair fell back down again. This is reminiscent of what we saw last week. We had been looking for a break of 1.55, and we got that to end last week, now we approach that level yet again.
USD/JPY
US 10-year notes are down nearly 30 basis points in yield since the middle of last week, which is helping to undermine the USD/JPY. I guess traders and hedgers are guessing that if the USD/JPY can’t build a beach-head above 84.50 when yields are above 3.56%, it’s going to have a harder time doing it at 3.27%.
We fell down to 83.62, a bit lower than what our lows from Friday, and below the 200-period MA in the 1h hour timeframe as we move lower in our trading range.
AUD/USD
The Aussie was higher today, coming close to testing 0.9950, retracing further its drop from Wed. There were some concerns that tensions on the Korean peninsula could case risk aversion, but the expected South Korean drills were not met by any retaliation by North Korea, and the commodity currencies, or at least the Asia-Pacific ones gained today.
USD/CAD
The USD/CAD meanwhile broke above its recent pivot at 1.0150, surging up to 1.02 before falling back. Oil was a bit weaker, likely being the catalyst.
http://www.fxtimes.com/
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