March 11, 2010

Euro still “Down Under” the Aussie Dollar

The Euro hit a new multi-year low of 1.4809 versus the Australian Dollar yesterday reaching the lowest level since August 1997. The single currency has now lost 25% in the past 12 months and it has done so in a troubling one-way move to the down-side (click on historic chart below). 


Today, the Euro recovered somewhat but still closed the day below 1.5000  an important technical and psychological support level. 


There has been no significant technical correction to speak of since this dramatic currency slide began last February. One should think that net sellers of the Euro would eventually take some profits and cover enough of their short positions for the Euro to regain some ground.  But it doesn’t appear to have happened just yet. 

In addition to the technical rationale for further downside pressure, ongoing concerns over Greek and other European Sovereign Debt will continue weigh heavy on the Euro going forward.  Furthermore, after the Australian 0.25% rate hike last week, Australia now enjoys a healthy 3% spread over European deposit rates making it a preferred target for a carry trade.  In the absence of significant negative factors for Australia’s economy, and unless there are deflationary pressures on commodities, one is tempted to follow the crowd and push the Euro lower still.  Next significant technical supports are at 1.4755, 1.4605 and 1.4375.  If this downward pressure continues, all-time low is at 1.4025.

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