Liquidation of the euro is leading the dollar advance today. The pace of the euro's decline seems to confirm what the option pricing had warned of, namely that longs were getting increasingly concerned. The precipitating factor is not clear.
Some are linking the move to social tensions in Egypt. There is talk, unsubstantiated of SNB intervening to slow the franc's appreciation.
Unnamed European officials are on the wires suggesting that the ECB is considering penalizing those institutions who rely "too heavily" on borrowings from the ECB. Market News Service reports that one possibility under consideration is a two-level system. Borrowing up to a certain amount is possible and one rate and above that amount is chared a higher rate.
Some observers compared it more to the Fed's discount window, which is neither a discount nor a window. At the end of December the four peripheral economies accounted for 335 bln euro borrowings from the ECB--a bit more than 60% of the ECB lending, while in terms of GDP they are collectively less than 20%.
It is not clear when such a decision will be made, but next week's ECB meeting is key and then the next day (Feb 4) EU leaders summit.
Euro Slides on Long Liquidation, ECB Noises
![Euro Slides on Long Liquidation, ECB Noises]()
Reviewed by Marc Chandler
on
January 28, 2011
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