EURUSD

Predictions are hard to make, especially about the future, but following the latest piece from AEP in the telegraph, where he states :

“The Chinese central bank’s reserve manager SAFE is clearly buying euros on a large scale to hold down the yuan and safeguard export advantage in Europe, but it appears to be purchasing short-term debt of a one-year maturity or less and other liquid assets.”

also..

“The three-month euribor/OIS spread, the fear gauge of credit markets, reached the highest level in two years today, jumping 7 basis points to 40 in wild trading.

“Europe’s money markets are undoubtedly starting to freeze up,” said Marc Ostwald from Monument Securities.

“It’s not as dramatic as pre-Lehman but it is alarming and shows the pervasive degree of fear in the markets. People are again refusing to lend except on a secured basis.”

If those with demand for Euros can’t borrow any, short term rates will go up, even if the market is non functioning. This will put upward pressure on the currency…. Given that we’re sitting in the middle of the range formed since the low in May, and given the violence of the rejection of each new low seen during the last couple of days’ trading, a break to the upside of this range is now not inconceivable. The “negative” outlook for the eurozone probably means that the market is short, which to me warns of the possibility of a significant move higher.