EUROPEAN policymakers have been complaining about an overly strong euro-dollar for weeks but it would appear that the price to pay for a weak euro is sovereign debt fears and renewed jitters over the Eurozone’s banking sector.

While Greece is still struggling to bring its deficit under control, speculation that Austrian bank Oesterreichische Volksbanken has been put on a watch list by the central bank – Oesterreichische has denied problems – has revived fears of a Eurozone banking crisis. And last week’s break higher on the dollar index looks to have broken the downward spiral in the US dollar over the last nine months. All in all, the euro will remain under pressure as its strength starts to unravel and a break below $1.4480 would be the first stage in a possible decline towards $1.4110 in the near term.

A good time perhaps to start going long on the greenback? CMC Markets’ current spread on euro-dollar is two basis points.

The inexorable march higher in the Australian dollar has ground to a halt over the last few days as concerns about the outlook for growth in 2010 have crept into the markets.

What’s more, the Reserve Bank of Australia’s (RBA) dovish minutes released yesterday did little to help the Aussie dollar-US dollar strengthen towards parity. As a result, risky assets – including the
Aussie dollar – could correct to the downside into the new year. Capital Spreads is offering a price of US$0.9066-US$0.9069 for the pair.

Euro-yen has remained rather directionless since the early autumn and even the positive news out of Abu Dhabi earlier this week was not enough to boost the euro against the Japanese currency.

Although demand for yen is likely to remain strong and problems in the Eurozone continue to suggest a longer-term move lower in the euro, the greater the problems, the larger the repatriation of euros is expected to be.

Those traders searching for risk-reward could look to go long on euro-yen in the near-term, entering the market at ¥130 with a close stop of ¥129 and a target of ¥138. Spreadex has a spot euro-yen spread of ¥130.47-¥130.53.