Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

EURIBOR, Euro and USD Index

Currencies / US Dollar Aug 04, 2010 - 07:37 AM GMT

By: Ashraf_Laidi

Currencies

Best Financial Markets Analysis ArticleMany have expressed scepticism with strength of the euro at a time when EURIBOR and EUR-Libor rates remained on the rise. EUR 3-month LIBOR stands at 12-month high of 0.83%, up 46% from its March lows. Yet unlike in April-May when rising Eurozone rates resulted from plummeting inter-bank confidence and falling liquidity in the system, the recent strengthening in Eurzone interbank rates has been partly boosted by improved macroeconomic/bank earnings figures, as well as a stabilizing currency.


Rising EURIBOR and EUR 3-month LIBOR are primarily negative for the euro at times when eroding interbank confidence leads to a shortage of US dollars in the global monetary system, to the extent of boosting USD-denominated LIBOR. But thats not been the case over the past 6 weeks. While EUR 3-month libor has risen by more than 20-bps since the peak of the sovereign crisis in early June, USD 3-month LIBOR fell by nearly 15-bps during the same period. Weak US data, FOMC economic downgrades and broadening Fed dovishness have accelerated the decline in USD-libor. Consequently, the chart below shows the EUR-USD 3-month libor spread (EUR minus USD as indicated by red graph) to have risen to its highest level since January, closely followed by a rising euro.

Just Like in October 2009

The steepness of the EUR-USD libor spread is instrumental in boosting EURUSD, in a manner that is highly similar to Q3-Q4 2009 (left circle) when USD-libor fell below its Japanese counterpart for the first time. That was the time when markets allowed for the possibility of fresh QE in the US. As is the case today, the Federal Reserve was the only major central bank most likely to add on to its existing asset purchases, while the BoE had ended its QE program and the ECB standing pat. The result was a broad decline in the US dollar, coupled with rising equities and soaring energy and metal prices.

A 200-day MA unlike any other

The US dollars decline made the headline today when the USD index hit 80.59, falling below its 200-day moving average for the first time since late January. The importance of such a decline will only be highlighted once the break of the 200-day MA lasts into mid-month. But theres something notable about todays development. It is the first time in the life of the euro that the USD index breaks below its 200-day MA, without EURUSD breaking above its own 200-day MA. The chart below shows EURUSD stands at $1.3230, which is about 3 cents below its 200-day MA. Considering that EUR occupies 57% of the 6-currency basket of the USD index, it can be deduced that the bulk of USDX losses have occurred against the other currencies in the index (JPY, GBP, CHF, CAD and SEK). Indeed, each of these currencies has risen above its 200-day MA against the USD dollar. With the euro lagging behind, this suggests the EURUSD rally is largely the result of USD weakness, which could be explained by lingering sovereign dent worries. But this may also serve a warning signal for the next leg of broad USD weakness once EURUSD breaks above its 200-day MA.

EURUSD has extended its rally across the board after closing above the important $1.3130s resistance. Despite a modest Tuesday pullback in US equities; risk currencies face little resistance in accumulating further ground against USD. EURUSD faces $1.3270 as the next technical target, which is the support from mid March to early April. Contrasting economic data between the US and Eurozone as well as the earnings performances on the banking sector continues to shore up the euro on the premise of broadening stabilization of inter-bank concernsand to a lesser extentrobust recovery in Germany. A little bit more help from Fed rhetoric will be crucial in extending EURUSD to the all-important 200-day MA (now at $1.3575)

For more frequent FX & Commodity calls & analysis, follow me on Twitter Twitter.com/alaidi

By Ashraf Laidi
AshrafLaidi.com

Ashraf Laidi is the Chief FX Analyst at CMC Markets NA. This publication is intended to be used for information purposes only and does not constitute investment advice. CMC Markets (US) LLC is registered as a Futures Commission Merchant with the Commodity Futures Trading Commission and is a member of the National Futures Association.

Ashraf Laidi Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in