CSI Forex, a market data provider and investigative company,
reported Friday that the rapid spike in the EUR/USD was caused by a
rumor that European leaders may be about to implement a short
selling ban on sovereign debt. Such a ban would effectively cap
yields at current levels and potentially cause a massive short
squeeze in bonds. The EUR/USD spiked from near 1.2240 to just shy
of 1.2325 before retreating back towards 1.23. However, these
rumors have yet to be confirmed and markets are awaiting official
comment from leaders for further clarity.
One reason for the retracement from highs could be the Finnish
Prime Minister Jyrki Katainen's comment that neither the bailout
funds nor the ECB should buy sovereign bonds. Katainen commented in
an interview with the Wall Street Journal that the European
Stability Mechanism (ESM), the permanent bailout fund, should not
be allowed to buy bonds on the secondary market. However,
previously established plans only call for the European Financial
Stability Facility (EFSF) and eventually the ESM to buy bonds on
the primary market. Thus, these comments may not be so
Katainen openly opposed the European Central Bank buying bonds
in the same interview. This was a departure from ECB President
Mario Draghi's plans to "do everything within [the bank's] mandate"
to support bond markets and protect the euro. The Journal interview
followed comments from German leaders, including Bundesbank
President and ECB Governor Jens Weidmann, that the ECB should not
be seen funding government's debts, which is against the bank's
mandate. Moreover, Katainen opposed Eurobonds and stated that the
Eurogroup has no plans to implement them.
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