EUR/USD is in the midst of testing important support at 1.3850.80 as the market gives the EU a vote of no confidence in its ability to deal with a banking crisis it swore would never spill-over to Europe from the US. The ECB will be further put to the test today as it tries to fill the void and act as the pan-European bank regulator that was left out of the EU financial structure. This should spin the ECB’s needle from its inflation focus to one of financial stability. If it does not, look for further losses for the EUR. A rate cut would likely be greeted as a relief for the euro today.
1.3665/80 is the next downside target if 1.3850 is overcome on a sustained basis.
