EUR/usd
The single currency got a back-blow in yesterday's U.S. session. Its movement from 1.3070 to 1.29 just in a couple of hours was mainly connected with the fact that the yield of the two-year German securities fell below the U.S. yields of the kind. Yesterday the German two-year bond yield made 0.17% against 0.24% a week earlier. The American bond yields haven't decreased much over the week, going down from 0.28% to 0.27%. In general, this means that the market is expecting further rate cuts by the ECB. Theoretically, it is reasonable, but the situation has formed not in one day – the German securities have been more expensive than the American ones for a long time already. Many have already pondered over the necessity of additional measures and probably of rate cuts on the part of Europe. So this story is pretty old. The demand for European debt securities can be explained by the success of the Italian debt auction. The short-term funding rate has become twice as little as it was a month back, falling from 6.5% to 3.25%. Behind all this there is felt the solicitous hand of Mario draghi, the current ECB president. To a great extent, the high strength of the movement has been caused by the absence of players and by mostly electronic trading in the market. This is what we warned about a week ago when we advised to place stops close to the borders of the channel.
GBP/USD
The British pound has fallen an innocent victim of all these movements with the euro and has also got into the avalanche of sales of all assets except for dollars. The GBP/USD has slipped from 1.5670 to 1.5450, where it is trading now. There has been no big news from the UK as well as no much movement in this country's debt market. It looks like that the trade has been carried out entirely by the forex market speculators. Since there is virtually no fundamental change in the general perspective, we may cautiously consider buying of the pair at the dips. As is so often the case, sudden speculative sales turn into buying by the end of the holidays or during the first trading days after the holidays. It mostly concerns the sterling, as all these movements with the euro don't affect the pound yet.
USD/JPY
The dollar/yen got some support for growth on the unexpected drop of the euro. The pair was going down over the first half of the day, having broken the support line of the upward corridor, which we've mentioned in our previous reviews. The pair fell to 77.50 at a certain moment, but then the sales of the single currency have returned it to the 78.0 area. Just like with the pound, we tend to think that since the move didn't directly affect the yen, in the near future the quotes are likely to return to the 77.50level. Those who have been methodically selling the pair since the beginning of the week will only redouble their efforts after the sudden growth of the pair. It's also noteworthy that the sale of the single currency has brought the EUR/JPY to its lowest levels since the middle of 2001. From the fundamental point of view it's reasonable as the euro is now much weaker than it was in its early days. But virtually the rise of the yen against the euro is unlikely to be welcomed by the Japanese authorities. The latter are already walking on the razor's edge, once again running the risk to slip into the recession on the weakening external demand.
AUD/USD
Yesterday the Australian dollar was on the verge of going below parity on the market sales. Having slipped from the 1.02 point, it slumped in the 1.0040 area. However, at this level it was supported by the bulls. Note that the last week attempts to fix the growth above 1.02 were halted at this very level. The local support which the bulls will yet fight for is strong. The main thing is that the sales of the single currency and other instruments including gold won't turn into a panic selloff after the breakdown of the EUR/USD support line.
