And the euro comes tumbling down! For the first time in a week, the euro took some heavy losses, as it stumbled versus the dollar and the yen. EUR/USD fell 49 pips to finish at 1.3073, while EUR/JPY closed 2 pips below its opening price to end at 103.61 to form a near-perfect doji on the daily chart. What gives?
What’s funny about yesterday’s price action is that Spanish bond yields actually dropped to their lowest levels in SIX months. Wait a minute… traders still want Spanish bonds? Shouldn’t this be euro positive???
Apparently, despite the drop in yields, we saw a classic case of risk aversion take over the markets, as U.S. equities dropped on poor Google earnings figures. This triggered a sell-off in riskier assets like the euro, which had actually been on quite a roll this week.
For today, we’ve got second tier data in the form of the German PPI, which is scheduled for release at 6:00 am GMT. Expectations are that producers paid 0.3% more for their raw materials last month, which would mark a slower price increase than the 0.5% we saw the month before. In any case, I don’t really expect this to affect the markets too much.
Instead, pay attention to the EU economic summit. If we hear any comments about Spain being more willing to request a bailout, it may spark another risk rally in the markets.