Last week took traders on a rollercoaster ride, especially in the European financial markets. The week started out with very little optimism, but hope remained that if nothing else, the European debt might start to level off. While nothing impressive happened at the beginning of the week for the euro, it held a shaky ground as traders awaited a decision from the European Central Bank about a possible rate cut. By Thursday, the euro plummeted after an announcement from the ECB that they would indeed cut interest rates as an effort to help ease the euro zone debt crisis. On Thursday afternoon and Friday morning, investors were probably thinking that the euro had seen its lowest low of the week with a five week low point, but those who believed that were wrong. By Friday afternoon, the euro had fallen to not just a five week low, but a two year low! As of now, the euro has shown signs of holding steady but that is most likely a very temporary position. More losses are prediction from the euro as another meeting is probably not going to breed confidence in the market.
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The euro steadied after hitting a two-year low against the dollar early on Monday, looking vulnerable to concerns that a meeting of finance ministers later will merely highlight the limitations of anti-crisis steps agreed last month.
Monday’s meeting will focus on follow-up steps to the plan drafted in June by European leaders to shore up indebted states and banks. Doubts about its effectiveness surfaced last week, leaving room for disappointment and more losses for the euro.
Further rises in Spanish and Italian bond yields, which have recently hit levels seen as unsustainable, could push the euro down further, bringing the 2010 low of $1.1876 into view.
But having lost more than 3 percent against the dollar last week, the euro may have scope for a temporary rebound as traders take profit on hefty bearish positions.
“The euro has moved a great distance in a short period and there is a risk of a bit of a correction. But unless it rises through $1.2410 it will still be worth selling into any rallies,” said Jeremy Stretch, head of currency strategy at CIBC.
“There is nothing too positive expected from the Eurogroup (finance ministers) meeting or from a speech by (European Central Bank president Mario) Draghi this afternoon.”
The euro was up 0.1 percent against the dollar at $1.2305, off a low of $1.2225 hit in thin early trade.
It hit a session high of $1.2316 after the European Commission said direct recapitalisation of banks will not need sovereign guarantees, but offers to sell the currency at $1.2320/40 are likely to cap gains.
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After hitting a two year low at the closing of last week, the euro showed signs of leveling on Monday. Another meeting, this time of the finance ministers, is set for later this week- if recent history has taught us anything it’s that European meetings usually don’t make for positive results for the euro- but for now, a temporary rebound isn’t out of the question.
The meeting will focus on follow-up steps to the plan drafted in June by European leaders to shore up indebted states and banks. This meeting has already been met with doubts, following pattern with the other various meetings about the European debt crisis, and many predict the lack of results will mean more losses for the euro.
The Spanish and Italian bond yields could push further down and see record lows very soon.
Do you think the euro will hit record lows this week?
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