EUR/USD has given back all of yesterday’s gains with focus on central and Eastern European currencies after Russia was downgraded to BBB with a negative outlook by Fitch and Kazakhstan devalues. Eurozone service sector PMI was a shade lower than expected at 42.2, adding to the woes of the euro. Central banks were sellers today, including Russia and Korea, we are told.
Dealers are reluctant to get too short of EUR/USD in the 1.27/1.28 region as we’ve had 300-500 pip bounces from that area several times in the last week. Should the euro maintain its’s large head of steam to the downside, 1.2700 will be a target for banks who have sold 1.27/1.37 double-no-touch options to China. They will push to trigger the option, pocket the premium, and then scramble to cover shorts. Beware a false breakout to the downside…
GBP continues to benefit from short-covering by medium and long-term investors after jawboning from the EU last week, a bullish Soros at Davos and a “buy” recommendation by Goldman yesterday. Selling is seen ahead of the ECB fixing at 12:15 GMT. The cross trades at 0.8902.
