Risk markets were all lower overnight and early this morning. Then Central bankers led by the US Fed announced emergency intervention to help lower the swap costs for US dollars needed by the ECB for Euro banks. As with all currency market interventions, this effort is almost certainly destined to be short-lived, but today at least it has succeeded in weakening the US dollar on the FX markets. The Euro crisis is driving investors out of the Euro in search of safer haven alternatives–they want dollars and they have been driving up its price. Euro-banks have been struggling to keep up with the demand. This has caused them to sell a weakening Euro and drain further liquidity from a banking system already in the midst of a massive (solvency) crunch. The greater the crunch, the higher the swap costs, the harder and more costly to get U$. Central bankers intervened today with a plan to ease pain and help the ECB get access to U$ dollars. But it does nothing to fix the financial crisis which is growing wider by the day. The Euro zone is facing the modern-day equivalent of a bank run. Meanwhile our dysfunctional markets driven by unregulated, high-frequency risk-trading-robots see U dollar down on the teeter totter and start hitting the ask on risk markets across the board. Apparently in 2011, bank runs in the second largest economic zone in the world are all good.
Cory’s Chart Corner
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