Quick note on Price Action: Look Out Below

The euro has been sold off to new two year lows.  It is at the lowest level against the yen since late 2000.  It is at fresh 4 year lows against sterling.  It is also being sold to new lows against a range of other currencies, including the Australian and Canadian dollars.  

There does not appear to be fresh fundamental impetus, though losses in the equity markets are mounting.  The Spanish and Italian equity markets are flirting with 4-5% losses on the session.  Spanish and Italian yields are rising sharply, pushing well through 7% and 6% respectively.  Spreads over Germany are widening dramatically as well.  Italian CDS prices are higher on the day, but well off their extreme highs, Spain is a different,.  The peak in June was near 623 bp and it is currently moving through 600 bp. 

There had been some talk of barriers near $1.2150 in the euro, but the it has gone like hot knife going through butter.   As is often the case, when a barrier is triggered, the market snaps back a bit.  This is what has happened.   The $1.22 area  may now serve as resistance.  There seems to be no chart-based support until closer to $1.20 and the $1.1880 area--low from mid-2010. 

There is some talk of a US bank claiming that the ECB adopt a negative deposit rate in October.  While possible, it seems unlikely.  The ramifications of a zero deposit rate has been sharp.  Several euro money market funds have closed or closed to new investors.  This is an important part of bank funding.   Moreover, banks appear to be simply shifting from the deposit facility to the current account facility at the ECB.  Negative deposit rates could be sidestepped by this unless the ECB does more to block this course.   

Sterling has been turned back after probing the space above $1.57.  Support is seen near $1.56 and then near $1.5565.  The Australian dollar is being dragged lower, but is still holding above yesterday's lows (inside day being recorded).  Softer than expected CPI data and falling equity prices have weighed on the Canadian dollar.  After nearing support near CAD1.0050 yesterday and earlier today,  the greenback has bounced back above CAD1.01.  The CAD1.0150-CAD1.0170 area offers resistance.