Friday May 14, 2010 - 18:11:55 GMT
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Investors Losing Confidence in Euro
The Euro touched its lowest level since October 2008 this
morning as investors continue to pull out of the currency on the fear that
political and economic problems will lead to a collapse of the economy.
Besides the risk of sovereign debt default, investors are
now becoming concerned about the lack of activity and the inaction from the
European governments. Once again investors are asking the question â€śwhere is
the union in the European Unionâ€ť.
The inability to stop the slide in the Euro by pumping $1
trillion into the economy with basically debt on top of debt has convinced
investors that the EU has and had no plan to prevent the kind of currency
slaughter taking place at this time. Investors
have grown weary of the reactive moves by the governments and want to see more
From the start investors have been asking for clarity from
the EU. No one wants to see a currency collapse, but without a firm plan in
place investors have had no options to consider except to sell the Euro.
This morningâ€™s selling pressure has been triggered by a
story in a Spanish newspaper saying that French President Sarkozy is
threatening to pull out of the Euro. Although his statement has been denied a
few times this morning, traders donâ€™t seem to believe.
The plunge in U.S. equity markets is leading to a
sharp break in the USD JPY. Traders are divesting out of higher yielding assets
and into the safety of the lower yielding Japanese Yen. The chart pattern
suggests that a break to 91.61 is likely. A failure to hold this important 50%
price should lead to further weakness.
Weakness in the Euro is spreading to the British Pound as
the euphoria from this weekâ€™s creation of a new government has apparently worn
off. Investors are nervously watching the events in the Euro Zone unfold with
the thought that the same issues can quickly spread to the U.K. At this
time, the GBP USD is holding last weekâ€™s low at 1.4474, but downside momentum
can push the market through this price at anytime before the close.
Yesterdayâ€™s closing price reversal in the USD CAD was
confirmed earlier this morning, putting this pair on a path toward to 1.0423 to
1.0498. The dumping of higher risk assets led by equities and crude oil are the
catalysts behind todayâ€™s decline.
Falling stock prices are putting pressure on the AUD USD but
have not reached the point of panic. So far today it looks like normal selling
pressure, but this may be only because the Dow is down 200 points. Should the
Dow extend its losses in dramatic fashion then look for even stronger selling
pressure to emerge on the Aussie.
A similar repositioning is taking place in the NZD USD.
Investors are selling the Kiwi in sympathy with the U.S. stock market break, but there
has been no sign of panic selling. So far everything has been orderly. This may
be because of lessons learned from last weekâ€™s panic sell-off. Traders donâ€™t
want to overreact like they did last week
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