Forex Journal

Turmoil in the FX market continues – developing in to fear

Monday, 23 May 2011 17:34 Jyske Bank A/S Forex Fundamentals

EUR/USD (SELL): The upward correction is over. Massive pressure on EUR – difficult to grasp the overall impact of all the negative news.
EUR/CHF (from BUY to SELL): “Loan fixing” in Hungary and negative focus on EUR sends CHF to an all-time high against EUR and DKK.

On Friday the stock exchange in Denmark was closed, but indeed other markets were open! The ‘Greek disease’ has begun to spread. 1) Standard & Poor’s now has Italy on ’Negative Outlook’. 2) The ruling socialist party in Spain suffers a historic defeat at regional elections – the prime minister explains the defeat by the severe economic crisis in Spain (unemployment rate at 21%). 3) The German magazine ”Der Spiegel” reports on ECB’s ”balance-sheet risk”/risk of loss, as European banks are allowed to provide Greek, Irish and Portuguese bonds as security for loans. The credit ratings of these bonds are very low.
In addition to the negative news from Europe, the economic indicators issued in the US on Friday clearly indicated that the fear of a slowdown in growth is not unfounded.
Investors should in particular keep a close eye on the oil price today (95 is an important level). Also, the equity market is ‘lagging behind’ the most recent turmoil causing commodities to fall by about 15% (equities only fell by 1.5%), so also in this respect investors should pay attention in order to capture the sentiment.

EUR/USD (SELL): We recommend SELL. An important technical level: 140.40-140.50.
If the rate falls below this, there will be a bit of resistance at 140, but in actual fact it will open op for a movement all the way down to the 200-day moving average at 136.73.
Offhand, the economic indicators to be released over the coming week are of no major importance, buts as we mentioned on Thursday the overall impact of the economic indicators may indicate the direction of the economies. If this ‘direction ‘ points down, this will all other things being equal strengthen USD, CHF and JPY.

EUR/CHF (from BUY to SELL): We had not expected the breach below 124.50, but as we indicated, we have adjusted our recommendation to SELL. Place very short stops. A story about loan fixing in CHF seems to have been misunderstood by some in the market and may cause an upward counter-reaction. The negative sentiment surrounding EUR does, however, justify the fall, and the cross rate may fall even further in the event of more bad news. In the event of an increase to 125, we adjust to NEUTRAL.