Euro breaks key support levels as investors eye up 2012

Tom Tong30/Dec/2011Currency Updates

GBP

Sterling weakened this morning due to thin holiday liquidity and investor appetite remaining weak at best. With no major economic data released this week to convince them otherwise, and economic activity slowing with inflation persistently high, the current economic outlook for the British remains moribund. However, the UK may not be in better shape than other countries, but the threat of many AAA rated Eurozone countries losing their coveted credit rating is in their favour. Bloomberg highlighted that the UK is home to this years best performing government bonds as investors seek top credit ratings and their own monetary policy. It seems Cameron’s isolation policy has shifted the balance of power for the better as we enter 2012.

EUR

Investors will be watching with a keen eye early into 2012 the efforts made to help contain the debt crisis in Europe. Sentiment in the market is that there will be a lot of negative factors coming out of Europe and this will continue to push investors towards safe haven investments and cash. Monitoring Europe and the health of the Chinese economy will be determinate factors in return to risk appetite. Yesterday saw positive US data which led to slight gains in US and European stocks as well as a key support level being broken on EUR/USD pushing it to a 15 month low against the greenback. The Euro is down just more than 3% against the dollar for the past 12 months and doesn’t look set to improve its position moving into 2012.

USD

Despite the low volume and tight range for a while, the EUR/USD has seen some dips, however, the dollar is on pace for its second annual gain against the euro and a basket of major currencies. The dollar turned down against the euro Thursday, bringing the shared currency off a 15-month low, after a pair of U.S. economic reports came in better than forecast, boosting equities and reducing the appeal of the greenback as a safe haven. Having said that, the dollar’s gains were lessened slightly in this morning’s trading after a U.S. report showed first-time jobless claims rose more than expected to 381,000 in the latest week. Analysts noted the data series tends to be more volatile around year-end. That could signal more willingness among investors to wade back into riskier assets and could help trigger a short-covering rally for the euro.

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Written by Tom Tong

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