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Foreign Exchange

EURUSD plummets towards lowest level this year; targets January low of $1.2859

EURUSD tumbled to its lowest level since January after a break down through the October low of $1.3146 sparked a wave of selling.

Traders say option-related selling accelerated the decline in the single currency as EURUSD broke down through barriers at $1.3150 and then further down through barriers at $1.3100. By late afternoon in London, EURUSD stood at $1.3066.

Sentiment towards the single currency has soured rapidly this week as the initial optimism over last Friday’s EU leaders’ summit has worn off.

The lack of progress from European leaders on finding a lasting solution to the region’s debt crisis has raised concerns that peripheral eurozone countries will face more funding difficulties in the first half of 2012 when there is sizeable sovereign debt to be rolled over.

That has been exacerbated by the reluctance of the European Central Bank to act as buyer of last resort in the eurozone sovereign debt market, something which many believe is the only way out of the debt crisis.

Technical analysts say the breach of the October low in EURUSD opens the way for a swift move down below $1.30.

Alan Collins, technical analyst at PIA-First, says the earlier move down through $1.3212 in EURUSD had generated an outright sell signal for the week.

“The market is now likely to focus on a move towards January’s $1.2859 low,” he says.

EURGBP also plunged to a low for the year at £0.8419, with the pound continuing to find haven support as investors sought a refuge from the problems in the eurozone.

The move confirmed the break of the 200-day moving average in EURGBP, an event that could trigger a sustained upswing in the value of sterling against the euro. The last time EURGBP broke through its 200-day moving average was in September 2007, when the break prompted the cross to rally from £0.7000 to £0.9500.

Bank of New York Mellon says its positioning data confirmed investor sentiment was resolutely negative towards the euro, with its iFlow FX indicator revealing that real money investors continue to abandon the single currency.

“The euro is still the strongest net sold currency across the board; we have now seen 10 consecutive trading sessions of steady net outflows at a pace that is twice as strong as the average flows in the single currency over the past year,” says Samarjit Shankar at Bank of New York Mellon.

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