I’m guessing that news that Germany is to inject an additional EUR 3 bln (as part of an effort to clean up its balance sheet) into West LB helped set off the latest rush for the exits in EUR/USD. The thinking is that there are likely more lenders lined up right behind them. There has been a general unease that European banks have done less capital raising over the last year than their US and UK counterparts and could be more vulnerable if the global economy takes a double-dip.
EUR/USD has dipped as low as 1.4883 so far; next support is at 1.4850. The lower we trade, the more nagging the fear that we’ve topped again at 1.5050/60. With the market very long EUR/USD, a significant correction is always a possibility.
