Wednesday, 24 March 2010

Euro drops out of its "managed" range but for now risk on trades prevail

EUR/USD has broken below $1.34 and as the chart above clearly illustrates the range which has been "managed" during the last few months, since October 2008, has been violated. It would seem that the efforts of several constituencies including Asian investors, hedge funds and even such trading wunderkind as Goldman Sachs were unable to protect the bottom of the range on the double whammy of deadlock regarding a rescue plan for Greece and the downgrade by Fitch with a negative outlook, confirmed today but rumored yesterday, of Portugal's sovereign debt.

Targets in the mid $1.20's are now firmly on the agenda for the euro in the intermediate term but one should be cautious of some near term erratic behavior as the EU struggles with all kinds of frenzied initiatives designed to look like it knows what it is doing with respect to the ever increasing anxieties regarding the sovereign debt picture for Greece, Portugal, Spain, Italy etc.

When the second most traded currency in global markets enters a crisis one would imagine that risk aversion would be on the increase but the manner in which asset allocators keep piling into high yielding debt, equities and other exotic securities is a wonder to behold. At least for the time being.

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