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I want to my ongoing analysis of the Euro as a proxy for risk appetite (or lack thereof) in this European headline-driven market. In particular, the Euro/Japanese Yen cross looks to be an excellent gauge of what is actually going on in the markets, versus what pundits think should or should not happen based on the monetary and fiscal policies here in American with The Fed, and by the ECB over in the EU. When the Yen is strong, the denotes an unwinding of the famous “carry trade” and overall risk aversion. With a weak Yen and strong Euro, however, risk appetite figures to be on the table in a major way. Now, more than ever, the movements in the Euro are being watched very closely.
Over the past week, the Euro/Yen cross has essentially gone dead. There seems to be a large group of market watchers looking for swift denise of the Euro, and while the late-October breakout quickly failed, the cross is still above its early-October lows. In essence, the Euro is in a holding pattern waiting on something to happen. We know the market tends to despise uncertainty, and adding to that is the fact that the Euro/Yen cross is about as uncertain to both bulls and bears as any chart you will see. Until we see a break of this tight range, traders are simply fighting over spare change.
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