Euro Hits Gold & the Rest
City Index December 14, 2012 11:20 PM
<p>A broad EUR rally despite falling equities; stabilising yen and falling gold? EUR is the day’s highest performer (out of top traded 16 currencies). Traders […]</p>
A broad EUR rally despite falling equities; stabilising yen and falling gold? EUR is the day’s highest performer (out of top traded 16 currencies).
Traders books nearing year-end are unwinding euro shorts vs. gold, which were accumulated in early May by Greek elections uncertainty. The elections risked placing anti-austerity left wing party in power and pushing the country out of the Eurozone.
May-June 2012 seemed like the perfect storm for euro pessimists, while the anti-EUR (US dollar) was boosted by market uncertainty about the Fed’s renewal of Operation Twist and possible lack of QE3 (which was eventually renewed in September).
Today, the successful completion of Greek buybacks, Greece’s receipt of its much needed €33 bn tranche and preliminary accords on EU Banking Union have further weighed on “tail risks”, which were initially quelled by Draghi’s Outright Market Transactions three months earlier. It’s important to reiterate that the ECB’s OMT was aimed at addressing the fiscal or debt problems of the region, but to reduce tail risk – also known as “redenomination risk”. This has happened—as seen through crushed volatilities.
We stick with our $1.35 target for EUR/USD as the renewed momentum renders this a “secular” euro rally, courtesy of an ECB remaining head of the curve (send ball back to governments’ courts) and of a US central bank zooming in on a 6.5% unemployment target at the expense of interest rates and its currency. As for Gold vs EUR, it is now retesting its 55-WMA, a level holding since Nov 2008. Seen in a different way, Gold-EUR was on its way to falling below this key level until it was saved by the explosion of event risk from those near-catastrophic Greece elections. Now with Greece PM saying the chances of a Grexit have fallen to zero and traders needing to exit out of positions, testing EUR 1220 for gold looms large.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.