Forex trading

It has been another disastrous week for the euro on the forex trading markets after it slipped to its lowest level for 15 months against the US dollar; while also tumbling to an 11-year low against the Japanese yen.

Thursday (January 5, 2012) saw concerns about euro zone funding hit new heights and with perceived weaknesses among the region’s banks, forex investors were quick to offload the shared currency.

There was actually strong demand for the euro at a French auction, which sold close to eight billion euros as part of a government debt to investors who had been attracted to bonds after a rise in yields. There was also strong demand for the euro at a German auction a day earlier.

However, these positive movements were offset by bond sales being predicted by both the Spanish and Italian governments next week, in what is the first major test of their refinancing efforts. It appears there is strong negative sentiment towards the euro and these sales are only likely to heap more pressure on the currency.

Now it seems that forex trading investors are not only looking for a reason to dump the euro, but they are also reluctant to buy, with the European Central Bank (ECB) indicating that banks were hoarding cash away rather than openly lending to each other – and this in spite of the ECB providing cheap three-year loans last month that amounted to close to half a trillion euros.

It wasn’t just against the yen and the US dollar that the euro suffered in forex trading – it also slipped against both the Canadian and Australian dollars. It is now only slightly above its lowest level against a trade-weighted basket in one and a half years.

Some forex analysts have suggested that the euro could face a temporary short squeeze with key players likely to pull back against their negative trades in the weeks to come.

However, David Bloom, the head of FX research at HSBC, told Reuters that people have no fear about selling the euro. As such the euro may slip to much lower levels before any squeeze occurs.