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Euro Finds Support At 1.3350, Swiss National Bank Rescues UBS

Thursday, 16 October 2008 10:03:59 GMT  |  John Rivera, Currency Analyst

The Euro is finding a bid tone after risk aversion sent it lower to test 1.3350. The EURUSD would test the support level several times before Euro bulls sent it back above 1.3450. A empty economic calendar left price action to risk winds as only the Italian trade balance turned to a deficit of -2.11 billion from a surplus of 2.070.

Talking Points
• Japanese Yen: Climbs back above 100.00
• Pound: Consolidating Near 1.7250
• Euro: Bouncing from Support at 1.3350
• Swiss Franc: SNB Bailouts Banks
• US Dollar: CPI on Tap

Euro Finds Support At 1.3350, Swiss National Bank Rescues UBS
The Euro is finding a bid tone after risk aversion sent it lower to test 1.3350. The EURUSD would test the support level several times before Euro bulls sent it back above 1.3450. A empty economic calendar left price action to risk winds as only the Italian trade balance turned to a deficit of -2.11 billion from a surplus of 2.070 Meanwhile, the Swiss national bank joined the party and bailed out UBS with a $59.2 billion dollar package, which helped to calm some fears and add to the Euro support.

Yesterdays largest one day percentage sell off demonstrates that there still remains a significant amount of fear in the market and that has pressured the Euro. The EURUSD has also received selling pressure as interest rate expectations for the Euro-zone are decreasing as expectations increase that the ECB may cut rates again. Indeed, the Credit Suisse overnight index swaps are pricing in 128 bps of rate cuts after falling to 102 bps. There is talk of another coordinated rate cut as the last united effort has failed to substantially impact the credit markets. Therefore we may see the Euro continue to trade heavy and look to test 1.3000.

The USDCHF fell over 100 bps on the news of the UBS bailout, as the Swiss franc continued to find support despite dismal fundamental data. Indeed, Swiss retail sales were unchanged after a 6.2% gain in July, as the financial crisis has caused consumers to curb their spending. The current market turmoil also sank investor confidence to -91.1 from – 58.5. If investors remain cautious then we may continue to see Swiss Franc strength

It has become clear that the dollar has benefited as risk aversion has sent cash flows into U.S. treasuries. Despite a dismal retail sales report yesterday the greenback strengthened. Therefore we may see the dollar bullish sentiment continue as investor fears have yet to abate, despite the global efforts to stem the credit crisis. Inflation data will cross the wires today and the expected easing of price pressures may weigh on the dollar. However, with the expected global slowdown inflation concerns may not have as significant an impact on policy decisions and the added [purchasing power for consumers may actually add to current bullish sentiment.

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