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Euro Dilution Continues While Yen Touches 9-month Low vs. U.S. Dollar

Euro Dilution Continues While Yen Touches 9-month Low vs. U.S. Dollar

2012-03-02 14:48:00
Christopher Vecchio, CFA, Senior Strategist

Fundamental Headlines

- China to Stop Local Governments’ Property Easing – Bloomberg

- EU Leaders Declare Crisis Turning Point in Shift to Growth – Bloomberg

- Red Cross Aid Convoy Reaches Homs, Massacre Feared – Reuters

- For Shipping Sector, More Defaults on Horizon – WSJ

- Tim Geithner: Financial Crisis Amnesia – WSJ

European Session Summary

Higher yielding currencies and risk-correlated took a step backwards on Friday as overall mediocre data in the overnight coupled with another weak Euro-zone summit dampened market participants’ appetite for risk. Although Italian 2011 debt and growth figures were better than expected, weak German retail data and a stagnant Canadian growth figure disappointed overall.

Euro-zone leaders, again, declared that this is a “turning point” in the crisis. Leaders are now stressing growth over austerity, even though austerity measures will continue across the continent. I remain highly skeptical that Euro-zone leaders will be able to concoct a scheme that satiates both the camp of cutting spending and the camp of spurring growth. Given this, the European Central Bank has been forced to step into the market as the lender of first resort – yes, first – after adding over €1 trillion over the past three-months.

Taking a look at credit, pressure is back on the periphery nations, with only the Portuguese and Spanish 10-year bonds pacing the losses on the day. Respectively, the bonds are now trading at a 13.028 percent yield and a 4.871 percent yield. Interestingly enough, French bonds are also under pressure, with the 10-year yield climbing to 2.783 percent. The best performers have been the Greek, EFSF, and German bonds; still, the Greek 10-year remains above the 30 percent threshold.

USDJPY 5-min Chart: March 2, 2012

Euro_Dilution_Continues_While_Yen_Touches_9-month_Low_vs._U.S._Dollar_body_Picture_10.png, Euro Dilution Continues While Yen Touches 9-month Low vs. U.S. Dollar

Charts Created using Marketscope – Prepared by Christopher Vecchio

Overall, the U.S. Dollar has been the top performer on the day. The Canadian Dollar, seemingly playing catch up to the rest of the commodity complex, has slipped by a mere 0.12 percent. Meanwhile, the USDJPY has traded at its highest level in nine months, breaking its 2012 high, and confirming that the moves lower at the end of February was merely a correction. On the flipside, the Euro and the Swiss Franc continued their general weakness following the ECB’s LTRO. With the Swiss National Bank meeting on March 15, the Swiss Franc could weaken substantially as traders try and position themselves for a potential floor hike in EURCHF from 1.2000.

24-Hour Price Action

Euro_Dilution_Continues_While_Yen_Touches_9-month_Low_vs._U.S._Dollar_body_Picture_7.png, Euro Dilution Continues While Yen Touches 9-month Low vs. U.S. DollarEuro_Dilution_Continues_While_Yen_Touches_9-month_Low_vs._U.S._Dollar_body_Picture_1.png, Euro Dilution Continues While Yen Touches 9-month Low vs. U.S. Dollar

Key Levels: 14:05 GMT

Euro_Dilution_Continues_While_Yen_Touches_9-month_Low_vs._U.S._Dollar_body_Picture_4.png, Euro Dilution Continues While Yen Touches 9-month Low vs. U.S. Dollar

Thus far, on Friday, the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is trading higher, at 9862.26 at the time this report was written, after opening at 9807.22. The index has traded mostly higher, with the high at 9870.70 and the low at 9800.78.

--- Written by Christopher Vecchio, Currency Analyst

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