Below you find our 'euro area watch' chart combo,

which aims to give an idea of the latest developments in the bank and sovereign funding crisis in Europe. As already indicated by the recent jump in the euro following the successful removal of the ECB's one year repos (€ 442 billion in one year repos expired on July 1), other indicators also show a slight lessening of tensions.

 


 

3 month euro-dollar basis swap: a further slight improvement to minus 40,5 basis points – click chart for higher resolution.

 


 

Euro basis swap, one year – also slightly improved to minus 46 bps – click chart for higher resolution.

 


 

5 year euro basis swap remains unchanged vs. our last update – click chart for higher resolution.

 


 

PIGS 5 year CDS spreads are slightly improving, with the biggest improvement in the Greek CDS, probably a result of the recent spike move inducing profit taking after the removal of Greek bonds from various bond indexes and passive investment strategies that can only hold investment grade bonds last Wednesday proved uneventful (a 'sell the rumor, buy the fact' situation, in this case) – click chart for higher resolution.

 


The SovX CDS index of 19 European sovereign debtors -also slightly improved, but the chart continues to look a bit ominous – click chart for higher resolution.

 


 

The euro vs. the US dollar. The market has been structurally heavily short the euro, so the appearance of a higher low (divergent to the lower low in euro vs. Swiss franc) was followed by a strong advance late last week after the seemingly successful conclusion of the term shortening of the ECB's liquidity operations. The red dotted line indicates a likely technical target should the bounce continue (previous support level, now resistance) – click chart for higher resolution.

 


 

Euro vs. Swiss franc – we already pionted to the potential exhaustion gap in our last update. This has now been confirmed by a large bullish engulfing candle forming last Thursday. Should the eruo continue to advance, this may in hindsight become an island reversal, as Friday's candle never strayed into the price territory of Thursday's – click chart for higher resolution.

 


 

Conclusion:

If these recent reversals hold up, we can look forward to a temporary lessening of market worries and potentially a bounce in various risk assets. However, it must be noted that all these reversals are still young, and the reaction may not amount to much. Still, from a technical perspective there seems to be a fair amount of short term upside potential for the euro, which in turn indicates that  given well-known recent intermarket correlations, corrective counter-trend moves can be expected elswewhere as well.

 

Charts by: Bloomberg, StockCharts.com

 


 

 

 

 

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Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

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