The ECB is Playing With Fire

Today we see that the forex market is rather calm and flat due to holidays and low liquidity. Investors have been bullish on USD lately as they think that the U.S. economy is improving more than expected. Increasing consumer optimism is also positive for the financial markets. Economists think that recent labor and manufacturing figures implied a more lasting and fundamental strengthening of the recovery. Currency analyst at Meritz Securities, Park Hyung-jung said “We expect to see a quiet, yet cheery holiday market on the back of positive U.S. data all the way up to the end of the year in the absence of any new risk factors”.
Barclays Capital said “Given a lack of factors to trade and low liquidity, activity is expected to be lackluster this week, but sluggish results of French and Italian government debt sales scheduled this week could pressure the euro amid an absence of progress in bolstering euro zone safety net” in a research note.
We still can’t see any improvements in the eurozone. As a result, comments from rating agencies can drag the euro lower in 2012. All investors know that Germany and France have been doing all the heavy lifting. So the most important question is: How long are they willing to pay? The market participants believe that it won’t be much longer, and so do the rating agencies.
German Finance Minister Wolfgang Schaeuble said “I consider the situation to be controllable. In the EU there’s a high degree of determination among the member states to stabilize the situation. There will certainly be some surprises and bouts of excitement along the way but we’re capable of managing the situation. I’d advise everyone to have a bit more serenity about it all. Europe is one of the strongest economic regions in the world and investors want to put their money in places where they can earn profits”.
It is obvious that politicians want to buy time for the debtor countries by lending them money, hoping to get it back when these countries recover. The European Central Bank is playing with fire by hurling gigantic amounts of liquidity into the market.
EUR/USD is trading at 1.3055 by the time of typing and for today resistances are located at 1.3123 and 1.3160. Support levels are 1.3012 and 1.2943.
GBP/USD is at 1.5602. Resistance levels are located at 1.5626 and 1.5691. Supports are located at 1.5547 and 1.5506.
USD/CHF is trading at 0.9358 by the time of typing and for today resistances are located at 0.9395 and 0.9449. Support levels are 0.9341 and 0.9280.
AUD/USD is trading at 1.0160. Resistances are located at 1.0204 and 1.0250. Support levels are 1.0096 and 1.0000.
The economic calendar is empty today as European, American and some Asian markets including Hong Kong and Singapore are closed on Monday.