Philip Salter
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TRADERS are extremely cautious over the fate of the euro. Despite governmental changes in the Eurozone, sentiment hasn’t appeared to pick up. After Merkel’s comments that the Eurozone is in its worst state since WWII, we should still expect short-term bearishness over the euro and strength in relatively more safe haven currencies such as the dollar. Capital Spreads quotes euro-dollar at $1.3545-$1.3546.

The safe haven appeal of the yen seems to show no signs of abating, as clouds continue to loom large over the Eurozone. What’s more, the clock is still ticking as the US hunts for a deficit reduction deal. Even though the prospect must be for this to be realised in some shape or form at the eleventh hour, markets are already jittery. This uncertainty can’t be helpful to the greenback. Of course, the Bank of Japan could jump in with another slug of intervention, which would certainly break the trend. The clever money will look to take short positions after the upside blip has extended itself, because fundamental market forces are too strong and the Bank of Japan’s intervention fund is simply too small to hold down the value of yen. IG Index quotes dollar-yen at ¥77.05-¥77.06.

The £0.8530 level in euro-sterling has proven to offer good support in recent months. Last week we saw the third attempt to break through it, as the euro was pushed through the £0.8530 level and traded down to £0.8486. Until now the euro has avoided punishment against sterling for various reasons, but as investors continue to liquidate euro-based investments and inward UK flows increase, traders will add to short euro positions and push the single currency out of its comfort zone. FairFX quotes euro-sterling at £0.8529-£0.8531.

Eurozone concerns continue to dominate currency markets this week. The Aussie dollar fell along with the euro, from highs of around $1.0344. With uncertainty and the technical picture looking bearish, Australian dollar-dollar looks vulnerable to a move to parity. Spread Co quotes Australian dollar-dollar at $1.0163-1.0165.