EUR/USD update (30th Dec 2011, 15:00)

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by Market Moves Staff

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The euro continued to struggle against the US dollar today, falling 24 pips to $1.2935 this afternoon as traders and analysts speculate that the worst of the eurozone debt crisis is yet to come.

The euro is the unloved currency at the moment. Funding pressures in the embattled region are expected to intensify in the first half of 2012 and the ECB has very little choice but to react with the limited number of tools that it has; by cutting interest rates again and most likely embarking on unconventional forms of stimulus to lower systemic risks and avert deflation.

The euro’s sharp drop below the $1.3 mark earlier this week, although exacerbated by an illiquid market, is already beginning to price in these outcomes. We may see the euro try to test the $1.3 mark again in the short term although many, including myself, are of the opinion that this level has now become a level of resistance. Currency analysts at Mitsubishi UFJ believe that EUR/USD has been moving in clear waves since the crisis of 2008 and that the next target will be its 2010 low of $1.1876.

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