Is the EUR Now On Life Support?

Without having to live up to his nickname, helicopter Ben, single handily was able to trump the Chinese yesterday. Choosing not to give any guidance about Fed policy has again rocked capital markets. For the latter part of this week they had been happily pricing in QE3. Policy makers lack of transparency has been able to outweigh the effect of a Chinese surprised rate cut. A cut that many expected to be delivered over this weekend. It is now being considered a preemptive strike for their inflation and sales numbers. The risky asset bounce this week has had more to do with market positioning rather than a turn in global fundamentals.

A euro debt downgrade here, a country downgrade there, and we have the common currency sucking on air and looking at its most vulnerable as we close weekly trading out. With this weeks ECB press conference and ongoing comments from Germany continuing to show no inclination to make policy concessions toward Spain, has the euro bears sitting comfortably. The rumored threat of Spanish banks been recapitalized within the next 48-hours is making it a tough go for Spanish and Italian yields. Investors continue to gravitate towards safety after their hopes of further stimulus from the Cbanks have been crushed. Spanish authorities have since reiterated a “no” decision until after the IMF and two external companies do their audit.

Ben’s testimony yesterday gave nothing away. He did not guide markets to expect new easing, nor rule out the possibility of further easing. How about an extension of the twist? Too many expected the Fed to step in and save the EUR. Ben prefers to hang tight, just like his European counterpart. The difference between both mens roles is that Draghi does not have Ben’s time scale to save his own currency and a union. Not making his task any easier this morning is Italian data revealing that industrial production slumped -1.9% in April, compared with expectations of a more modest fall of -0.5%.

This market was overbought on the way up on the back of QE3 exuberance and expect it has been oversold on the way down, thus far, in disappointment of the Fed committing to further easing and on fear that Asia’s biggest economy is slowing faster than previously expected. How hard is a soft landing? Expect the Aussies to have a good definition on that. China remains their biggest exporter and the RBA is very much guided by the degree of pain that will be suffered from any “landing. So how are we left as we close out this week with a frontal lobe headache? Technically, the EUR’s failure to clear the 21-DMA (1.2598) has and will only see selling again. Especially now that intraday trend levels are beginning to roll over from overbought. This does not necessarily mean we see an immediate “black hole” looming, but the market is telling you its occurring.

The retail sector can claim victory this week, if not, for the past month. They have been playing this EUR range bang on, by buying the EUR at its most vulnerable late last week and selling into Mario and Ben’s performances this week. Despite the graphs indicating that they have nearly squared away their intraday positions, any rallies will continue to be attractive to reestablish some demanding shorts.

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Ben to Crush EUR Hopes?