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EM Fears Could Continue to Rattle Currency Markets

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EM Fears Could Continue to Rattle Currency Markets

Emerging market fears continue to make their way through the capital markets, driving the yen higher prior to the weekend. The dollar did not see substantial gains, as investors sold equities and drove up bond prices as a reflection of their fear. EM currencies have seen the largest loses with the Argentine Peso experiencing the largest loses.

Argentine peso is being watch following end of currency controls. The currency slumped more than 20% against the dollar over the days leading up to the weekend. The Argentinian peso could fall further this week after the government said on Friday that it would end a two-year-old ban on Argentines buying foreign currency. That will allow the country’s citizens to purchase dollars, which they are obsessed with following crises such as the one in 2002. However, the Central Bank, the main source of foreign exchange, has reserves of less than $30 billion US dollars in Pesos.

In Europe, the German business optimism continues to strengthen. The IFO institute’s business climate index increased to its highest level since July 2011, rising to 110.6 in January from 109.5 in December and topping consensus of 110. The current-situation reading rose to 112.4 from 111.6 and the expectations print climbed to 108.9 from 107.4.

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The EURUSD currency pair traded in a tight range at the beginning of the week, trading above the 10-day moving average near 1.36, which is seen a solid support. Resistance is seen near the recent highs at 1.38. Momentum on the currency pair is positive with the MACD (moving average convergence divergence) index generating a buy signal late last week. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crossed above the 9-day moving average of the spread. The RSI is printing near 52 which is in the middle of the neutral range.

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