The crisis in Europe is far from over, and as the European Central Bank has expanded its balance sheet, the Euro has lost some of its luster. The EUR/USD pierced last year’s low and broke the 1.2800 exchange rate for the first time in over a year.
• Cordray’s Ascent Widens Consumer Bureau’s Reach – Bloomberg
• ECB Cash Averts ‘Funding Crisis’ for Italy, Spain – Bloomberg
• Private Hiring Surges, Jobless Claims Dip – Reuters
• EFSF Bond in Demand – WSJ
• France Clears Bond Auction – WSJ
European Session Summary
Higher yielding currencies and risk-correlated assets took a step backwards in the overnight, with the bulk of the significant price action occurring once European markets began to open. While higher yielding currencies, such as the Australian and New Zealand Dollars, slid modestly throughout Asia, the sell-off was ignited after commentary out of Berlin. Indeed, the policy stance that German lawmakers have taken – that of not increasing the Euro-zone’s bailout fund – easily overshadowed the promising French bond auction results.
As so often it has been overlooked in this entire Euro-zone sovereign debt crisis, domestic politics might easily be the biggest hurdle facing the Euro-zone in the coming weeks. Culture and history have often not mixed in Europe, and parliamentarians in the core Euro-zone countries, as well as those in the periphery not facing a debt crisis, have indicated their intentions to reduce further spending measures. In line with this division between inner and outer, this means that any further bailout funds for Europe will need to come from an external source – one that has yet to materialize.
With the German leadership bloc now signaling its reluctance to provide any further fuel to the bailout fund, it is likely that some of the smaller, more fiscally conservative countries will follow suit. Given the political pressure in the common market, it’s of little surprise that the EUR/USD fell below the 1.2800 exchange rate ahead of trading in New York. This is the first time since September 2010 that the Euro has traded this low against its American counterpart.
EUR/USD 5-minute Chart: January 5, 2012
Charts created using Strategy Trader– Prepared by Christopher Vecchio
Overall, the flight to safety was in full swing, with the U.S. Dollar leading the majors just over halfway through trading on Thursday. Likewise, the Japanese Yen was among the top performers. The Euro lagged the majors as it fell through key levels, while the other European currencies, the British Pound and the Swiss Franc, followed suit, settling just as low, if not lower, than the commodity currencies.
24-Hour Price Action
Key Levels: 14:13 GMT
Thus far, on Thursday, the Dow Jones FXCM Dollar Index is higher, trading at 9970.83, at the time this report was written, after opening at 9896.35. The index has traded only higher, with the high at 9980.22 and the low at 9896.35.
--- Written by Christopher Vecchio, Currency Analyst
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