The euro is lower going into the US open as volatility is currently at extreme levels while many forex traders continue to take a cautious stance buying safe haven currencies. Speculation that France would be the next AAA to lose its top rating proved false but the denial by the rating agencies has not spared the French banking sector and this continues to push the euro lower below the 1.42 level. The CHF has come off of its lows but it may be at the expense of the Japanese yen which is trading near pre-intervention levels.
The euro continues be out of favor today versus the USD and the JPY but is up against the Swiss franc. The major rating agencies denied France is on the verge of losing its AAA rating though the market reports were enough to cause President Sarkozy to recall ministers from vacations and issue a statement affirming France’s commitment to reducing its budget deficit. Despite the French response French banks in particular are hardest hit with the European Stoxx 600 Bank down 2.1% today after falling 7% yesterday to trade at its lowest level since April 2009. The ECB is reportedly purchasing both Spanish and Italian bonds in the secondary market and have so far succeeded in keeping sovereign yields below 6% in the 10-year bonds. As a result of the European financial pressures the EUR/USD is testing yesterday’s lows near 1. 4120. A break here and forex traders will target the 1.4050 level. The rising trend line from the June 2010 looks to be the line in the sand for the pair and comes in at 1.3860. Resistance is found at 1.4275.
Concern of further action by the SNB to weaken the CHF has the USD/CHF trading at a two day high. To weaken the CHF the SNB is weighting options from as aggressive as a peg to the euro or a 1% tax on Swiss deposits. The EUR/CHF is holding its own near the 1.0500 level despite the overall euro weakness. However, any gains in the CHF will likely offer forex traders better levels at which to enter into the long term trend of a strengthening CHF.
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