Forex Market Review – Yen stronger after flight to safety as euro zone crisis deepens

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Euro slid to a two week low against the dollar on Monday as pessimism grows ahead of a two-day EU summit at the end of this week. Investors are preparing for disappointment as they do not expect any solutions to the euro zone debt crisis at this summit, especially after German Chancellor Merkel reiterated today that Germany is against any joint euro bonds.

 

Adding to Europe’s woes was a request for a bailout by Cyprus, as result of the nation’s large exposure to Greek debt. Meanwhile, the Spanish government today formally asked the EU for aid to help shore up its trouble banking system.

 

EURUSD touched a low of 1.2470, which is the lowest level since June 12.

 

Sterling hovered near a two-week high against the euro  but gains were limited on speculation of more QE from the Bank of England.  EURGBP slid to a low of 0.8018 in New York trading, not far from this month’s low of 0.8010 struck on June 12.   However, the pound underperformed against the safer dollar today, with GBPUSD falling to as low as 1.5537 before stabilizing in the U.S. session.

 

The safe-haven yen  advanced as investors cut exposure to riskier currencies and assets on worries about the deepening euro zone crisis and slowing global growth, pushing the yen almost 2 percent higher against the euro. EURJPY tumbled to a low of 99.14 during the U.S. session from the day high of 101.09. USDJPY broke below the key 80.00 yen level to 79.43.

 

Commodity-linked currencies such as the Canadian dollar weakened today against the U.S. dollar as crude oil fell. Oil is a major Canadian export. USDCAD touched a near two week high of 1.0316 in the North American session.

 

Higher-yielding riskier currencies such as the Australian dollar also fell against the safer greenback. AUDUSD edged lower in the New York trade to 0.9967 before stabilizing.