LTN”s measures of risk appetite across all markets tell us that Players are still keen to put on risk, even as the USD weakness was not pronounced ahead of this weekend.

The Big Q: What is that all about?

The Big A: have a look at the EUR-CHF breakout and what is likely driving it.

USD and G-20

I noted that markets were beginning to move in different directions Friday morning. Not much has changed on that account during the trading sessions, though the ranges are muted ahead of the weekend as the market mulls whether anything is really cookin.

The crazy Geithner idea could actually gain acceptance, and come to pass in some form simply because it is an easy framework to agree on and an impossible one to enforce. But he needs more the Japan and Korea aboard, he needs China. And so far China says NO.

The Geithner’s plan with the EU stability pact has proven fangless even for the comparatively tight knit EuroZone.

EUR-CHF and interest rate spreads

EUR-CHF has been reluctant to participate in the EUR strength evident in other crosses, but now the market bidding up EUR-CHF on its recent break of Key resistance around 1.3500 after a false breakout Thursday.

What is the reason for the CHF weakness?

Perhaps the panic easing off on the precious metals trade is one reason, but also the interest rate spread has started stretching more drastically to the Euro’s advantage, as the 2-year swap spreads between the EuroZone and Switzerland indicate.

The speed that the EUR rates have moved higher lately is really unsustainable from my POV, though one could argue that there is more upside to price into this pair if spreads are the only focus.

Further out, one wonders how long the market can fail to focus on the longer run sovereign debt/EuroZone framework issues and the potential for a situation like that in France to spiral out of control.

At present, the market is trading the Euro like Germany is the only country in the bloc. Stay Tuned…Paul A. Ebeling, Jnr. www.livetradingnews.com

Posted by Shayne Heffernan on Oct 23rd, 2010and filed underAnalysis, Europe, News & Events.You can follow any responses to this entry through theRSS 2.0You can leave a response by filling following comment form or trackback to this entry from your site