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The EUR got crunched, why?

Posted by Adrian on July 4, 2008

As predicated by majority of the market Jean Claude Trichet the governor of the European Central Bank increased interest rates by 0.25%, bringing the European rate now to 4.25%. At the same time the US released the payroll job claims at 62,000 – now rising to 5.5%. So why did the EUR get crunched? The EUR with all intent was heading towards 160 against the US dollar, was sold very sharply, almost like a panic. Sending the EUR down from 1.59 to 1.56, kinda senseless selling. Regardless, traders (maybe prudent ones) would have brought their stop loss up just under 1.58, or it that tight range of 158 and 159.

But the EUR sell off was unexpected from a technical perspective,

Ok without going off into speculative conspiracy theory land, one could pose the question that EUR reserves were sold off from somewhere (either the Federal Reserve or otherwise) and the timing of the US job losses report (which all and all, points to a US recession) but was the job report as bad as forecasted?

But the reality is the EUR over dominating the USD and driving the USD lower, thus adding to inflation – a weaker EUR against the USD would be favorable, but in current market terms improbable. So was central bank intervention the reason for a dramatic drop in the EUR? ECB overall decision is to contain inflation in Europe.

Is the USD too oversold? Are the markets looking at the USD as a possible buy? Yet gold and oil continue to climb against the USD.

I still think the USD is not in any kind of ‘buy’ mode against the EUR (let alone anything else), Gold was little effected by the EUR sell off and so was oil now currently trading at record of 145 a barrel. The concentration was a massive EUR sell off.

It would be wise to close positions of the EUR and await US economic data. The EUR does look extremely oversold, but there could be intention on keeping the EUR at a certain level, despite a higher cash rate on the EUR over the USD.

Caution.

refer to chart (click on chart for larger view)

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