11.14.11

Week of Moderate Gains for the USD, despite the Risk Aversion

The previous week has been dominated by the risk aversion which started to show on the market due to the situation in Europe. After the resignation of the Greek Prime Minister, the crisis started to really spread towards Italy as well, not only at the financial level, but also at the political one. After the vote which indicated the fact that the Italian Prime Minister, Silvio Berlusconi, is not wanted by the Italian citizens and after the sell of the Italian 10-year bonds, the market started to be dominated by an increasing risk aversion which seemed to calm down just a little at the end of the week. Traders are very concerned by the financial situation in Greece, Italy, Spain and Portugal and by the spreading political crisis, especially as there are rumors according to which Angela Merkel seemed to discuss with the other European leaders the possibility of quitting the unique currency for the Eurozone.

The risk aversion sentiment generally has a positive effect upon the safe-haven currencies, such as the US Dollar or the Japanese Yen. But, despite the traders’ concerns, the US Dollar only managed to score moderate gains on this increasing sentiment. This is not specially related to the economic situation in the US, as we would have expected it, although things are not evolving at increasing speed over there either, but only to the fact that traders don’t seem to get enough of the situation in Europe and they do not seem to start trying to have a global view upon the world’s economy. Despite the fact that the European crisis and the discussions concerning it have been going on since what it seems now to be forever, traders do not show any sign of boredom. They continue to be massively affected by the situation in Europe and they continue to let the concerns related to the situation there affect their trading sentiment when it comes to all of the currencies on the market. And, as we can see that all the meetings between the European leaders lead to nothing good in particular, we can assume that the situation is going to continue this way for a while now.

The political crisis which shook Europe at the beginning of the week has been a major cause of risk aversion. This has actually helped the US Dollar make some gains, although we are not speaking of a really consistent change of the situation. But, by the end of the week, after some more discussions between the European leaders, traders started to feel confident again, hoping that the countries in the Eurozone are to solve their problems soon especially by having elections and new leaders in the near future. This has generated a turn towards risk appetite at the end of the week, which has caused the US Dollar to massively fall, erasing, in most of the cases, the gains scored during the beginning of the week. The Japanese Yen has been more appealing to traders, being the only currency which has managed to increase during the entire week.

The EUR/USD pair fell from 1.3828 to 1.3748, after previously reaching the low of 1.3483. The GBP/USD pair went from 1.6065 to 1.6067, after previously reaching the value of 1.5867. The USD/JPY pair decreased from 78.17 to 77.10.

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