The Euro has had a tipsy turvy week against the Greenback, falling around two and a half cents on Monday after the US agreed their debt deal. Although this was as most speculators expected the threat of the US potentially defaulting was so severe we still saw a movement that was this sharp.
Over the last few days speculation has continued that the US may still suffer a credit downgrade and yesterday Fitch put their credit rating up for review. Again I would say this is unlikely but another very notable threat to the USD. Certainly I would argue that the Dollar is quickly (if only temporarily) losing it’s safe haven status.
Expect serious volatility between this currency pair as both economies deal with potentially crippling issues. The EUR/USD currently sits at 1.4276 and I foresee the outlook for the US to be more bearish towards the end of this week and I could see EUR/USD retrace towards 1.44 by the Close of Business on Friday.
The Swiss Franc has been the ‘safe haven’ of choice over the last few months as American problems continue to escalate. However finally the SNB (Swiss National Bank) have decided that enough is enough and have put their foot down to artificially weaken the Franc by slashing their interest rates.
If the SNB are going to stand by this decision then they may well be prepared to sell off some of their own assets if rates start to climb back. If this is the case then the Franc will struggle to make much further gains against all majors as they are fighting the Swiss Bank who are trying to keep Swiss imports more affordable.
Following the lead of the Swiss Franc the Japanese Yen has today also artificially weakened their currency by selling off their own assets. They have sold off around $127 billion worth of JPY and this has meant EUR/JPY has gained around 3% already this morning and is now trading at 113.91.
This now begs the question that with the US economy potentially facing a downgrade, QE3 on the cards and the Swiss & Japanese both artificially weakening their currency where will be the preferred safe haven going forward? Safe options will generally do well in times of uncertainty and it seems we are facing a time of extreme uncertainty.
If you are looking to purchase Yen or Francs from Euros then it is an ideal opportunity after the initial effect of governemental efforts have set in. Normally after the initial effect these sort of currencies will go back to gaining. I think this will certainly be the case with the Swiss Franc as it had very little reliance on it’s interest rate to keep it’s exchange rate strong.
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