Germany bans speculative short selling, triggering EURUSD collapse

EURUSD R 2: 1.2600 R 1: 1.2450 CURRENT: 1.2193 S 1: 1.2000 S 2: 1.1800

USDJPY R 2: 93.70 R 1: 92.80 CURRENT: 91.97 S 1: 90.85 S 2: 89.00

GBPUSD R 2: 1.4550 R 1: 1.4400 CURRENT: 1.4282 S 1: 1.4110 S 2: 1.3830

AUDUSD R 2: 0.9085 R 1: 0.8800 CURRENT: 0.8554 S 1: 0.8500 S 2: 0.8270

Market Brief

The JPY gained against all 16 major counterparts amid heightened demand for safety after Germany prohibited naked short-selling and speculating on sovereign debt, and the Bank of Italy allowed lenders to exclude losses on government bonds. The USDJPY declined to 91.95 from 92.23 yesterday, after reaching 91.56, the lowest level since May 7. The GBPUSD declined to 1.4239, the weakest since March 30, 2009, and USDCAD traded at 1.0449, the most since May 7. The JPY rose and Asian currencies fell as regional stocks extended a global rout, spurring investors to flee emerging- market assets. The MSCI Asia Pacific Index slumped 1.7%, down more than 11% from its April 15 peak. South Korea's won was the biggest loser among major currencies, sliding 1.9% against the JPY and 1.6% versus the USD.The AUDUSD slid to as weak as 0.8516 while AUDJPY slid 0.8% to 79.11 to the lowest since September as concerns about Europe's debt crisis and a possible slowdown in China undermined investor and Australian consumer confidence fell 7% to 108 points in May to the weakest since June 2009. The consumer confidence survey also highlighted the risks that homebuyers are becoming concerned about the outlook for the Australian economy. The second month of waning consumer confidence suggests the decision by RBA Governor Glenn Stevens to raise the benchmark lending rate on May 4 by 0.25% to 4.5% will damp household spending that accounts for around 60% of the economy. RBA raised interest rates too quickly and aren't likely to increase borrowing costs further in coming months due to concerns of a second global slowdown. NZDUSD fell to 0.6831, the weakest since Feb. 9 while NZDJPY declined 1.2% to 63.26 as RBNZ Governor Alan Bollard said gradual depreciation was desirable. The AUDNZD rose as Bollard said the nation needs to reduce its reliance on foreign borrowings and narrow its budget deficit as financial markets focus on sovereign debt.

The EURUSD weakened to as low as 1.2144, the weakest since April 17, 2006 while EURJPY declined 1% to 111.47 for a second day to the lowest level in more than four years as Germany's ban on some speculative sales triggered concern Europe's debt crisis will worsen. The currency slid to its least since April 2006 after Germany prohibited naked short-selling and speculating on European government bonds with credit-default swaps and the Bank of Italy allowed lenders to exclude losses on government debt. German Chancellor Angela Merkel will give a speech in parliament today to open a debate on Germany's contribution to the EU's bailout plan. The German ban, which lasts until March 31, 2011, also applies to the shares of 10 banks and insurers including Allianz and Deutsche Bank. The step was needed because of exceptional volatility in EU bonds, financial regulator BaFin said. The currency has fallen in six of the past seven days amid prospects mandated spending cuts will curtail growth. The currency's 14-day RSI was at 21 yesterday, the lowest since October 2008.