“Risk Off” Trade is on again

The market has been choppy, and hopefully the FX tips are making life a little easier.  Here’s my thoughts this week.

US investors were caught off guard by the reversal of sentiment toward Europe.  The euro had rallied in the immediate aftermath of the stronger than expected US jobs data ostensibly on a greater appetite for risk.

Stories include empty shops in Greece and concerns over the lack of governments in Belgium and the Netherlands.  French unions are on strike today in Paris.  Irish bank solvency has re-emerged as a key issue.

This week a European bank took 60 million dollars from the ECB’s Fed swap line.  The ECB noted that last one bank–perhaps the same one as this week–took  40 million dollars from the swap line at a rate as much as 4-times greater than LIBOR.

The Euro is again on shaky ground and is poised to break through trend line support at 1.2700.  A close below this area would be negative to the Euro and could spill over into the equity markets.  The markets took a breather and allowed the Euro to rally on some positive US news, but the Euro is not out of the woods, and the return to watching yields in the periphery will happen before you can blink.