Originally posted at forexfactory on Jun 17, 2010
Quote:Originally Posted byÂ DarkstarThanks for the well reasoned argument.
The euro currency rate has limited exposure to finreg with maximum exposure to euro zone sovereign default risk. If things were tanking in Spain and/or other euro zone countries (as the CDS rates imply) the euro should be testing the lows and fear should be pervasive. At the moment it’s up ~3.5% and climbing every day. There is obvious concern, but nothing like there was back in late april/early may.
Yup. The euro has been shrugging off bad news ever since it broke through 1.2150. Wave after wave of semi bad news and the market barely budged save for some intraday retracements. A few weeks ago the market was moving lower off those pieces of news but not anymore. There are still a ton of people stuck short euros and will need to cover soon.
Quite a lot of option players expected EUR/USD to be stuck in a range of 1.18/1.19 – 1.25 DNT’s. Lets see if those 1.25 barriers get cracked.
Supposedly there seems to be a decoupling taking place between the sovereign debt crisis and the risk assets/currencies including the EUR.
Risks still exist for sure including but not limited to:
1. Further credit downgrades (especially if big country like France, Italy gets cut)
2. Deflation starts to occur signaling anemic/negative eurozone growth
3. How the people continue to respond to the austerity measures, how economic growth is impacted by austerity, how well will the tourist season will be for club med countries.
4. If there is a eurozone wide ban of naked short selling on cds’s, bonds etc
Some of the above are contingent upon the sovereign debt crisis fading more and more and markets will start caring about growth differentials and who is going to be closer to raising interest rates. Although that time could be a few weeks, months, who knows.