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Wednesday, February 28, 2007

Euro Outlook (28th February 2007)

The EUR/USD opened in Asia around 1.3240 after breaking higher on USD weakness emanating from rising risk-aversion that was the Dow fall as much as 500 pts at one stage. The EUR/USD gains were contained by heavy EUR/JPY selling that saw the cross fall from 159.00 to 155.75 at one stage.

After trading at 1.3242 in early Asia the EUR/USD eased back to 1.3212 on USD/JPY led USD strength and heavy demand for US Treasuries by Asian investors. The EUR/USD couldn't bounce and hung between 1.3210/20 for the balance of the session. The EUR gained ground against the JPY today with the EUR/JPY trading up to 156.85 from the opening level around 156.15, but lost ground against the GBP with the EUR/GBP falling from 0.6748 to 0.6730.

Sentiment towards the EUR/USD is generally bullish due to lower US yields and growing risk aversion. Analysts feel that that the EUR might suffer from extreme risk aversion if heavy unwinding of JPY-funded carry trades leads to EUR/JPY selling on a large scale. EZ HICP and Unemployment data will be out later today followed by US GDP.

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