The downward trend for European bourses continued this morning with the major indices all trading in the red and gold prices reaching a new all-time high. The euro has recovered off of its lows following reports of the ECB bond buying but USD strength could reemerge once trading gets underway in North America.
Worries that European banks are not well capitalized to deal with significant losses from a sovereign default or a US recession has European equities deep in the red. Yesterday's disappointing US economic data and increased inflation did little to stabilize the situation. One European bank has been borrowing dollars from the ECB for the first time since February. The SNB has also activated its swap line it holds with the Federal Reserve. The German DAX is down 3.50%. The FTSE 100 is lower by 1.85% and the French CAC 40 is down by 2.20%. Asian equities also finished the day down sharply.
The euro has fared better than European financials with rumors of the ECB back in the market buying Italian and Spanish bonds. This has supported the EUR/USD with the pair rallying back to 1.4400 after failing to break below yesterday's low at 1.4270. As the New York trading session gets underway the euro could come under renewed pressure should US stocks move in the direction of their European counterparts. The EUR/USD has a short term retracement target at 1.4420 with resistance is located at 1.4500. Support is at 1.4350 and yesterday's low.
Canadian CPI was in-line with consensus forecasts of 0.2% m/m. The CAD initially was sold following the news but the ensuing euro rally helped support the commodity currency. The Loonie is currently subject the events in Europe and in the US for direction as the USD/CAD has a high negative correlation with the S&P 500. Initial support for the pair is found at 0.9775 but has a 61% Fib retracement level at 0.9640.
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