##{"id":58931,"date":"2011-10-03T15:18:50","date_gmt":"2011-10-03T04:18:50","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/10\/03\/euro-ready-to-tumble\/"},"modified":"2011-10-03T15:18:50","modified_gmt":"2011-10-03T04:18:50","slug":"euro-ready-to-tumble","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/10\/03\/euro-ready-to-tumble\/","title":{"rendered":"Euro Ready To Tumble?"},"content":{"rendered":"

\n\tEuro On The Verge Of A Massive Tumble As Major Event Risk Rises<\/strong><\/p>\n

\n\tBy John Kicklighter<\/span>, Currency Strategist<\/p>\n

\n\t $\"\"$ <\/p>\n

\n\tEuro On the Verge of a Massive Tumble as Major Event Risk Rises<\/strong><\/p>\n

\n\tFundamental Forecast for the Euro: Bearish<\/strong><\/p>\n

\n\tSpain and Italy extend bans on short selling <\/a>in an effort to curb panic
\n\tFinancial Times report that the Greek bailout will be renegotiated <\/a>sparks fear
\n\t EURUSD<\/span> and EURGBP<\/span> <\/a>put in for a late-session tumble prominent support to end the week<\/p>\n

\n\tIn an unexpected burst of momentum in the final hours of trading this past Friday, the euro tumbled to the threshold of major support against its US and British counterparts (two of the currency market’s most liquid pairs). This puts the world’s second most liquid currency at immediate risk of a extraordinary plunge to start the new trading week. However, whether or not we have immediate follow through is largely dependent upon whether this was a natural reflection of the deteriorating fundamental conditions behind the struggling euro or if, on the other hand, this was a unique situation that is reflective of quarter-end positioning.<\/p>\n

\n\tIt is an unusual situation where the end of the week, month and quarter align. It is even rarer that this particular event occurs during a period when the financial markets are arguably on the verge of a second round financial crisis. End-of-quarter position squaring is not an unusual phenomenon; but we have not seen it have so significant an impact on the euro in recent history. That begs the question: was the currency’s sharp drop a one-off repatriation; or was it a lasting shift in sentiment running under the guise of maintenance capital flows? Depending on the answer to that question; the euro can take dramatically different paths next week.<\/p>\n

\n\tIf the late tumble was indeed the influence of a temporary, receding capital tide; it is very likely that the floor underneath EURUSD<\/span> and EURGBP<\/span> holds up to start the week and further encourages a meaningful recover later into the week as we approach event risk. On the other hand, if confidence in the euro was collapsing under the weight of its own fundamental future; we could come to the rare instance where a major generates a new trend in the thinnest session (the opening Asian session) and\/or before heavy event risk.<\/p>\n

\n\tWhere Monday will be a litmus test for the volatility to start the week, we already know the stability beneath the euro. Conditions are extremely strained; and the probability that a smoldering fire could turn into an outright financial blaze is frighteningly high. There are two particular threats that we will need to keep tabs on next week: the progress on the regional crisis and the possible outcomes for Thursday’s ECB<\/span> rate decisions. It is easier to benchmark the policy meeting as there is a specific time involved. However, this is far from the typical meeting. The market is reflecting a near-certainty that the President Trichet<\/span> will usher in a 25 basis point cut before his term ends. That said, a reflection on commentary and data suggests the policy group is more likely to revive covered bond purchases (European QE). If we see both, it would be that much bearish. Alternatively, if we only see one of the two and not significant enough conviction behind further policy accommodation, the bears may find they have overshot with their expectations.<\/p>\n

\n\tLess easily defined; but far more important to the future of the euro is the progress behind the region’s long-lived financial crisis. Through this past week, we have seen yields on Greek, Italian and French sovereign debt ease while credit default swaps on domestic banks and EU members themselves have also backed off. Is this evidence of an impending recovery? No. Instead, we are seeing a natural balance that is common with uncertainty about the future – but this equilibrium is still deep into panic territory. Anything can trigger another rise in fear – a headline, a disappointing bond auction (we have Portugal and Spain selling debt this week), a breakdown in negotiations about how to handle Greece and many other issues.<\/p>\n

\n\tWith all this risk in mind, we should also be aware that there is room for relief. Given the extreme levels of pain and fear across so many European barometers; if there is a sign of temporary reprieve, it could shake speculative shorts and encourage temporary inflow. ECB<\/span> stimulus could accomplish that; and so too can hope surrounding the EFSF<\/span> expansion ‘buy time’.<\/p>\n

\tThe views expressed are not FNArena's<\/span> (see our disclaimer).<\/p>\n

\n\tFor real time news and analysis, please visit http:\/\/www.dailyfx.com<\/span>\/real_time_news<\/p>\n

\n\tDailyFX<\/span> provides forex<\/span> news on the economic reports and political events that influence the currency market. Learn currency trading with a free practice account and charts from FXCM<\/span>.<\/p>\n

\n\twww.dailyfx.com<\/span><\/p>\n

\n\tDisclaimer<\/strong><\/em><\/p>\n

\n\tForex<\/span> Capital Markets is headquartered at Financial Square 32 Old Slip, 10th Floor, New York, NY 10005 USA.<\/u><\/em><\/p>\n

\n\tTrading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before you decide to trade the foreign exchange products offered by Forex<\/span> Capital Markets, LLC, Forex<\/span> Capital Markets Limited, inclusive of all EU branches, FXCM<\/span> Asia Limited, or FXCM<\/span> Australia Limited, any affiliates of aforementioned firms, or other firms under the FXCM<\/span> group of companies [collectively “FXCM<\/span> Group”] you should carefully consider your objectives, financial situation, needs and level of experience. If you decide to trade foreign exchange products offered by FXCM<\/span> Australia Limited you must read and understand the Financial Services Guide and the Product Disclosure Statement. FXCM<\/span> Group may provide general market information and commentary which is not intended to be investment advice and the content of this email must not be construed as personal advice. By trading, you could sustain a total loss of your deposited funds and therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading in foreign exchange products. Foreign exchange products are only suitable for those customers who fully understand the market risk. FXCM<\/span> recommends you seek advice from a separate financial advisor.<\/em><\/p>\n

\n\tFXCM<\/span> Group assumes no liability for errors, inaccuracies or omissions in these materials and does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FXCM<\/span> Group shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. This email is not a solicitation to buy or sell currency. All information contained in this e-mail is strictly confidential and is only intended for use by the recipient. All e-mail sent to or from this address will be received by the FXCM<\/span> corporate e-mail system and is subject to archival and review by someone other than the recipient.”<\/span><\/em><\/p>\n

\n\tTechnical limitations<\/strong><\/p>\n

\n\tIf you are reading this story through a third party distribution channel and you cannot see charts included<\/span>, we apologise<\/em><\/span>, but technical limitations are to blame.<\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Market analysts at FXCM suggest the euro is close to a major fall as investors continue to factor in a negative outcome from the current sovereign debt crisis.<\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[10],"tags":[29,41],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/58931"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=58931"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/58931\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=58931"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=58931"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=58931"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}