Euro Plummets to 6-month Low as Greece Default Nears
• Germany Said to Ready Plan to Help Banks if Greece Defaults – Bloomberg
• Stark to Leave ECB Over Bond-Buying – Reuters
• U.S. Demands Action from Europe’s Strongest at G7 – Reuters
• Obama’s Bid to Spur Growth – WSJ
European Session Summary
Although market participants may have been feeling slightly more positive about the medium-term outlook of the U.S. economy after President Barack Obama’s speech on the labor market last night, any optimism was erased after developments out of Europe today. An event that has been a long time coming, it now appears that Greece will default on its debt and / or be forced to leave the Euro-zone. On such news, risk-appetite quickly evaporated, leading to a mass exodus from European banking shares and higher yielding assets.
One of the biggest losers throughout the European trading session was the Euro. After breaking below the psychologically significant 1.4000 exchange rate yesterday after the European Central Bank maintained its key interest rate at 150-basis points while simultaneously employing dovish rhetoric, the EUR/USD hit a six-month low on Friday. Trading at 1.3645 at the time this report had been written, the EUR/USD was the second weakest currency pair on the day, just behind the EUR/JPY.
EUR/USD 1-minute Chart: September 9, 2011
Charts created using Strategy Trader– Prepared by Christopher Vecchio
The Euro was, in fact, the worst performing major currency across the board, even ahead of higher yielding currencies such as the Australian Dollar and the New Zealand Dollar, typically the two currencies that face increased selling pressure in times of risk-aversion due to their higher yields. The currency bloc was certainly not supported by the resignation of European Central Bank Executive Board member Juergen Stark, who apparently was leaving in protest of the central bank’s bond buying policy, according to sources. Although the European Central Bank said Stark was leaving for “personal reasons,” such a scenario is highly unlikely, given the state of European affairs.
Also weighing on the Euro were comments by Canadian Finance Minister Jim Flaherty, who said that “It’s necessary for the Greek government to stay the course…The alternative is probably that they leave the euro. I expect the Greek government would want to continue their fiscal consolidation.” The comments come from the G-7 meeting in Marseilles, France, where central bankers and finance ministers are having their first face-to-face talks since “coordinated action” was promised on August 8 to calm financial markets.
Thus far, on Friday, the Dow Jones FXCM Dollar Index is significantly higher, trading at 9728.58, at the time this report was written, after opening at 9628.85. The index has traded mostly to the upside, with the high at 9731.94 and the low at 9609.17.
24-Hour Price Action
Key Levels: 15:30 GMT
Written by Christopher Vecchio, Currency Analyst
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