The euro is in a free fall versus the dollar following a speech by ECB President that was absent of the typical wording to prepare markets for an interest rate hike. The pause in ECB tightening fed into risk aversion as commodities continued their decline in-line with US dollar gains. Today’s sharp move lower across asset classes signals a change to the risk-off mode.
The EUR/USD shed more than 3 cents today as the pair was in a tailspin, triggered after the ECB press conference that failed to produce live up to traders’ interest rate expectations. The pair fell to a low of 1.4509 from 1.4840, taking out a plethora of stops on the way. The euro was also down sharply in the crosses with the EUR/GBP down at 0.8870 from 0.8996, and the EUR/JPY was lower at 116.53 from 119.63.
Trichet’s speech had the effect of reversing the overbought euro but also the commodities bubble. Crude oil prices collapsed below $100 for the first time since mid-March. Gold and silver also continued their declines that began earlier this week with spot gold falling to $1,472 and spot silver dropping to $35.35 from $39.24. Spot silver is down this week by almost 26%. The S&P 500 is down by 1.00%.
While it may be premature to call this a turn in the market, the sharp move across asset classes signals a change to the risk-off mode. The risk aversion could carry over into tomorrow’s trading with the release of the monthly jobs report. Traders should keep one eye on global equities as a rally in the bourses may bring about a renewed bout of euro buying. However, a weak jobs report may feed into further USD buying and the EUR/USD decline could continue. A drop to the 1.4280 support level would still keep the pair’s bullish trend intact, perhaps inducing buyers at better levels to enter.
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Russell Glaser is a Currency Analyst with ForexYard. Russell provides analysis in the FX spot market by employing fundamental research methodologies. In addition to currencies, Russell closely follows the correlation between the Commodities market and the movement of equities. His writings have been published on the ForexYard Trading Blog and associated partner sites. Prior to joining Forexyard, Russell Glaser served as a management consultant in the financial services industry, advising Fortune 100 companies. Russell holds a degree in finance from the Fisher College of Business at The Ohio State University.
