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OpenTrade Reports that The Euro came back in a wave of short covering on the first trading day of July and a day before US employment data was released. www.opentrade.com.au
The basis for the rebound was the successful 3 month ECB refinancing operation, but a the extreme EUR short-positioning helped the Euro higher. The first clue is that the EUR’s gains came against all major currencies, but the biggest losers vs. EUR were those with the largest short positions: CAD -2.66%; USD -2.59%; and AUD -2.29%. Perhaps most strikingly, the price of gold denominated in EUR fell nearly 60 EUR or almost 6% and those in silver almost 6.7%.
The second clue was the supposed easing of funding tensions in Eurozone money markets. While it’s true that the 3-month refi saw only about EUR 130 bio taken, less than the expected EUR 250 bio, it’s also true that the following day’s 6-day auction saw more than EUR 110 bio taken up, bringing the total rollover of ECB financing in the past week very close to the expected demand.
It may be that Euro-area banks have simply opted for shorter-term borrowings in light of ECB pledges to keep unlimited funding in place, but it’s still clear that financing for European banks remains problematic. More tellingly still is that Euribor lending rates jumped the most in a single day since the height of the financial panic (Oct. 2008) and to the highest since last fall. Clearly, the European banking sector remains stressed.
The basis for the rebound was the successful 3 month ECB refinancing operation, but a the extreme EUR short-positioning helped the Euro higher. The first clue is that the EUR’s gains came against all major currencies, but the biggest losers vs. EUR were those with the largest short positions: CAD -2.66%; USD -2.59%; and AUD -2.29%. Perhaps most strikingly, the price of gold denominated in EUR fell nearly 60 EUR or almost 6% and those in silver almost 6.7%.
The second clue was the supposed easing of funding tensions in Eurozone money markets. While it’s true that the 3-month refi saw only about EUR 130 bio taken, less than the expected EUR 250 bio, it’s also true that the following day’s 6-day auction saw more than EUR 110 bio taken up, bringing the total rollover of ECB financing in the past week very close to the expected demand.
It may be that Euro-area banks have simply opted for shorter-term borrowings in light of ECB pledges to keep unlimited funding in place, but it’s still clear that financing for European banks remains problematic. More tellingly still is that Euribor lending rates jumped the most in a single day since the height of the financial panic (Oct. 2008) and to the highest since last fall. Clearly, the European banking sector remains stressed.
