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Euro Resumes Slide as Polish Summit Yields Little But Words

Euro Resumes Slide as Polish Summit Yields Little But Words

2011-09-19 14:15:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Fundamental Headlines

Euro Bulls Capitulate After Trichet Comments – Bloomberg

Fears Over Exemptions to Volcker Rule – Financial Times

Obama Deficit Plan Aimed at Democratic Base – Reuters

Fed Ponders Jobs, Inflation Targets – WSJ

Greece Eyes Fresh Cuts as Default Fears Grow – WSJ

European Session Summary

The Euro was the second worst performing major currency in the overnight, just behind the Australian Dollar, as concerns over Greece gripped markets participants once more. Late last week and into the weekend, in Wroclaw, Poland, Euro-zone finance ministers met on how to stop the region’s sovereign debt crisis. Commentary from the weekend was barely supportive of the Euro, though markets were clearly disheartened as no plan was announced. With nothing more than a few quotes to reassure participants and boost market sentiment, risk-appetite evaporated headed into North American trading.

EUR/USD 1-minute Chart: September 16, 2011

Euro_Resumes_Slide_as_Polish_Summit_Yields_Little_But_Words_body_Picture_1.png, Euro Resumes Slide as Polish Summit Yields Little But Words

Charts created using Strategy Trader– Prepared by Christopher Vecchio

The Polish summit ends a few days after the Federal Reserve announced it would conduct liquidity swap operations with the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank. As I noted on Friday, “the move signals that said central banks are extending a series of three-month loans to their respective commercial banks in order to shore up liquidity. In the fall of 2008, after Lehman Brothers collapsed, liquidity dried up as banks were fearful of lending their available capital.” In an effort to prevent such a collapse, policymakers appear to be better in tune with investor sentiment and thus are preemptively working to prevent another liquidity crunch that some experts say exacerbated the 2008 market collapse.

In terms of how the safe haven currencies performed, the Japanese Yen and the U.S. Dollar were the two strongest performing currencies on the day. If concerns over Greece persist, then the U.S. Dollar is likely to strengthen in coming days. The key moment for the Greenback this week, however, occurs on Wednesday. Markets and risk in general have ticked higher in recent weeks on speculation that the Federal Reserve will announce the third round of quantitative easing at their meeting. However, if no further easing is announced, then the U.S. Dollar looks to perform well for the remainder of the year. Overall market direction should become clearer after Wednesday as such.

Thus far, on Monday, the Dow Jones FXCM Dollar Index is much higher, trading at 9804.32, at the time this report was written, after opening at 9732.53. The index has traded mostly higher, with the high at 9812.91 and the low at 9731.32.

24-Hour Price Action

Euro_Resumes_Slide_as_Polish_Summit_Yields_Little_But_Words_body_Picture_4.png, Euro Resumes Slide as Polish Summit Yields Little But WordsEuro_Resumes_Slide_as_Polish_Summit_Yields_Little_But_Words_body_Picture_5.png, Euro Resumes Slide as Polish Summit Yields Little But Words

Key Levels: 12:50 GMT

Euro_Resumes_Slide_as_Polish_Summit_Yields_Little_But_Words_body_Picture_6.png, Euro Resumes Slide as Polish Summit Yields Little But Words

Written by Christopher Vecchio, Currency Analyst

To contact the author of this report, please send inquiries to: cvecchio@dailyfx.com

Follow Christopher Vecchio on Twitter: @CVecchioFX

http://www.twitter.com/cvecchiofx

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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