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Euro Retreats Off Session Highs on Concern Over Ireland

Last updated 1/10/2012 4:16 AM ET (GMT -5) 1 Comments

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Boris Schlossberg

Director of Currency Research, GFT

@import url(/css/cuteeditor.css); The EUR/USD came under some selling pressure at the start of European trade on speculation that Ireland may now become another hot spot in the region’s persistent battle with sovereign debt problems after a Citibank economist suggested that the Emerald Isle needs a second bailout   to reduce its debt service costs. Citibank economist William Butler was quoted as saying that, “the most attractive option from Ireland’s point of view would be a reduction on the interest it pays on an outstanding €30 billion in promissory notes, issued mostly to deal with the collapse of Anglo Irish Bank.” He said Ireland is paying in the region of 6 per cent on this money but it could be refinanced at 3 per cent by the European Financial Stability Facility.  

Although Ireland has been touted as a poster child for sound economic recovery after it instituted draconian budget deficit reforms and returned back to growth, the latest data from the country suggests that it may be sliding back into a recession. Yesterday Ireland reported that Consumer confidence slid to 49.2 from 60.1 the month prior - its largest decline since 2001 - while   expectations for the next 12 months dropped to 32.4, the lowest level since January 2011.  A renegotiation of its interest rate costs would go a long way towards alleviating some of the financial burden the government faces and may temper any political impulse to secede from the EZ if the economic situation deteriorates.

The EUR/USD tumbled to a low of 1.2750 after coming within a few pips of hitting 1.2800 in late Asian trade, but has since stabilized as equity flows remain positive. With little economic data on the European or North American docket for the rest of they day, risk sentiment will likely be the key driver of trade. If equities can extend their rally the EUR/USD could make another run at 1.2800 figure as the day proceeds.   

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Comments (1)

traderwillie

January 10, 2012 at 07:18 AM ET

Thanks Boris, the notes on Ireland are helpful. Draconian measures in the island are helpful, but ballooning debt cannot be overcome by them alone. On the whole, citizens there as well as in most developed countries have no grasp on the unbelievably staggering amount of debt that countries are trying to service...the ratios would crush any ordinary household. It also seems likely to me that all these reforms may be over turned in the event of continuing worldwide recession, as citizens come to feel that they are taking in on the chin, but it is not "getting them anywhere". Nevertheless, i'll be looking long the euro today, especially if we can break and close above 1.2820.
Bill Jenkins
www.thefxtradingmasters.com
www.empowernetwork.com/traderwillie

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.