01 | Autor: The Week Ahead
What to look for in the week before
The Week Ahead updated July 2, 2010
• EUR bounces and the USD sags
• Chance retreat accelerates on China, US
• ECB refinancing center mount; banking woes likely a more durable concern
• Steady programme for the BoE, but the inflation debate rages
EUR bounces and the USD sags
The Euro came storming back in a huge wave of short covering on the first trading day of July and a day before US pursuit data was released. The ostensible basis for the rebound was the popular 3 month ECB refinancing operation (more below), but a more likely explanation was rigid EUR short-positioning. The first clue is that the EUR's gains came against all foremost currencies, but the biggest losers vs. EUR were those with the largest short positions: CAD -2.66%; USD -2.59%; and AUD -2.29%. Perhaps most strikingly, the honorarium of gold denominated in EUR fell nearly 60 EUR or almost 6% and those in lustrous almost 6.7%. The second clue was the supposed easing of funding tensions in Eurozone specie markets. While it's true that the 3-month refi saw only about EUR 130 bio enchanted, less than the expected EUR 250 bio, it's also true that the following day's 6-day auction saw more than EUR 110 bio charmed up, bringing the total rollover of ECB financing in the past week very approximately to the expected demand. It may be that Euro-area banks have fully opted for shorter-term borrowings in light of ECB pledges to keep unlimited funding in associate, but it's still clear that financing for European banks remains moot. More tellingly still is that Euribor lending rates jumped the most in a singular day since the height of the financial panic (Oct. 2008) and to the highest since last be defeated. Clearly, the European banking sector remains stressed.
