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For the last four months, the EUR/USD has found itself unable to stretch its legs and move away from the 1.3000 level. Once again the currency markets are trying to assess the implications of the USD/JPY currency cross as it begins to edge higher again, as it is not just the equity markets that are struggling to come to terms with the full implications of the ending of the US quantitative easing policy.
This uncertainty can be highlighted with the fact that EUR/USD has now broken through the 200-day moving average for the ninth time in less than four months. At the time of writing IG clients are 63% short; however this has recently swung around, as confusion and uncertainty continues to surround the markets.
Once again the euro traders have to keep an eye on the bond markets, as both Portuguese and Slovenian sovereign debt yields are above 6.5% and creeping towards the danger level of 7%. Brewing in the background are also Spanish and Italian sovereign debt yields, which are heading higher and bubbling around the 4.75% area. Any one of these four breaching the 7% level would set panic around the eurozone again, and would be likely to trigger a bailout from both the European Central Bank and the International Monitory Fund.