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Euro Firms Despite Continued Sell-off of Commodity Currencies

Euro Firms Despite Continued Sell-off of Commodity Currencies

2011-10-04 13:36:00
Christopher Vecchio, CFA, Sr. Currency Strategist

Fundamental Headlines

EU Flags Bigger Losses for Greece Bondholders – Bloomberg

Lacker Says Fed’s Twist Won’t Spur U.S. Jobs – Bloomberg

China Warns of Trade War if U.S. Bill Passes – Reuters

S&P 500 Set to Enter a Bear Market – Reuters

Greece: Finances Can Withstand Delay – WSJ

European Session Summary

The beginning of October hasn’t treated markets kindly, as was expected. With last week marking the end of the third quarter and thus books being marked to market, realized losses are coming to home to roost. There was been a noticeable shift in market sentiment over the past few months: the second quarter was about trying to prevent a Greek default; the third quarter was about trying to delay a Greek default; now the fourth quarter will be about how the markets will absorb a Greek default. The second day of trading in the new quarter has not looked promising thus far, with further chunks of value wiped off Asian and European equity markets in the overnight.

In another dramatic downturn in the Greek debt saga, more bad news came down the pipeline for investors: European officials are hinting that private bondholders may be encumbered with bigger losses on Greek debt. The question of who would take the lion’s share of write-downs – bondholders or European governments – has been a sticking point for the core Euro-zone countries. Today’s development that bondholders may be forced to take a bigger hit suggests that the deal for a second aid package to Greece may be unraveling.

EUR/JPY 10-minute Chart: October 3 to 4, 2011

Euro_Firms_Despite_Continued_Sell-off_of_Commodity_Currencies_body_x0000_i1028.png, Euro Firms Despite Continued Sell-off of Commodity Currencies

Charts created using Strategy Trader– Prepared by Christopher Vecchio

Despite all of this, the Euro has held up nicely today ahead of the North American session open, as the only major currency to gain against the U.S. Dollar. However, before its rebound, the Euro touched the lowest level in a decade against the Japanese Yen, while similarly hitting an eight-month low against the Greenback. The shift to risk-aversion was in full-swing, with the commodity currency block losing the most ground on Tuesday. A victim of deteriorating rate expectations, the Australian Dollar was the worst performing major currency against the U.S. Dollar ahead of North American trade, as a lack of hawkish commentary out of the Reserve Bank of Australia sunk investment sentiment.

Thus far, on Tuesday, the Dow Jones FXCM Dollar Index is higher, trading at 10108.01, at the time this report was written, after opening at 10068.54. The index has traded mostly higher, with the high at 10126.36 and the low at 10066.73.

24-Hour Price Action

Euro_Firms_Despite_Continued_Sell-off_of_Commodity_Currencies_body_Picture_1.png, Euro Firms Despite Continued Sell-off of Commodity CurrenciesEuro_Firms_Despite_Continued_Sell-off_of_Commodity_Currencies_body_Picture_7.png, Euro Firms Despite Continued Sell-off of Commodity Currencies

Key Levels: 13:05 GMT

Euro_Firms_Despite_Continued_Sell-off_of_Commodity_Currencies_body_Picture_4.png, Euro Firms Despite Continued Sell-off of Commodity Currencies

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

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


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