Forex Market Review – Euro falls to 21-mth low as EU Summit hopes fade

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Risk aversion fuelled by uncertainty in Europe is continuing to drive the markets today, as hopes for progress to tackle the euro zone debt crisis at the EU Summit are fading. The gathering of EU leaders in Brussels today takes place as Greece prepares to hold new elections on June 17 and amid growing speculation that Greece will exit the euro zone. Apart from Greece, also high on the EU summit agenda is the creation of joint-issuance euro bonds, which Germany is strongly opposed to.

 

EURUSD breached January lows during the European session and reached as low as 1.2614, the lowest since August 2010. After a sharp decline, (down 1.6 percent since late Monday) the pair will most likely consolidate and correct before resuming bearish action again, as the larger trend is towards dollar strength.

 

GBPUSD tumbled to a nine-week low of 1.5676 in a knee-jerk reaction to the release of much worse-than-expected UK April retail sales data. Subsequent profit-taking on short positions lifted the pair to1.5733. Meanwhile, the Bank of England released its policy meeting minutes which suggested that there was room for more quantitative easing.

 

USDCHF was bought up sharply as safe haven demand flowed to the greenback, lifting the pair to a new four-month high of 0.9519.

 

Yen held onto gains against the dollar after the Bank of Japan earlier today kept its monetary policy unchanged. USDJPY plumbed to a low of 79.32, down 0.7 percent so far today, the bias remains on the down-side.

 

USDCAD is consolidating gains between 1.0206 and 1.0236 after rising since Tuesday morning, as the greenback benefits from safe haven demand during risk aversion.

 

The aussie was also weighed down by damp risk sentiment, with AUDUSD sliding to a new six-month low of 0.9729 during the European trade.