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EUR Surging As Banks Scramble To Cover Liquidity Needs With 30 Day Euro Repos Hitting One Year Highs
An ongoing topic discussed recently is the slash and burn ongoing in Europe as banking counterparties have exactly zero confidence (and less with each passing day) in their counterparties. The backstop by the ECB of everything (for now) is the only thing keeping the system from collapsing. Yet with the ECB now at over $1 trillion in backstop funding for European banks, there will be a point beyond which not even the central bank's "credibility" will be enough. Today, we are seeing a spike not only in Libor and Euribor (both EUR denominated), but most notably in the 30 Day Repo rate. The result is a scramble to fund EUR positions. Whether the catalyst was this morning's 6 Day ECB liquidity providing market operation at this point is immaterial: the outcome is one of the biggest surges in the EURUSD in the history of the pair, which at last check was fast approaching $1.25.
This EUR surge is nothing more than a liqiuidity scramble and should in fact be interpreted as EUR adverse and is indicative of an even worse funding pictures in Europe and among European banks. Reader pp explains below:
In dark blue is 3 month cost of euros in Europe in the interbank market (euribor), in purple is cost of USD in Europe (euro libor), and in light blue is 3mth repo in europe. This chart speaks for itself. I may be reading into this too much, but that slight dip in the repo line (light blue) in the end of June could be the quarter-end games played among banks who window-dressed their balance sheets for quarter-end and therefore had less of a need to borrow cash by posting treasuries as collateral across the June 30 "window." Now it's July 1 and the repo rate has snapped higher by just over 4bps to 0.46% - a new 12 mth high.
Of course, the recent acceleration in the rise in Euribor and Euro Libor is also scary, and tells you that banks are really pulling in their horns on each other and continuing to 'hunker down' -- of course, why shouldn't they when nobody knows whether the counterparty has cancer or is just fine? A lender trying to determine an appropriate rate of interest when such binary scenarios/thinking are so well defined is incentivized to just say no, right? I don't amaze much, but it amazes me that we watched this exact reel here 2 years ago and investors still talk about TED spreads or Libor-OIS... talk about generals analyzing the last war. It does NOT surprise me that the press was trying to put a nice face on the lower-than-expected 3mth facility uptake yesterday as the LTRO rolls off. I say: WHO CARES? The real story is the complete collapse in confidence among "highly interconnected banks" who now wish they weren't so connected!
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the AUDJPY wouldnt disagree
Did SNB intervene to stay below the 200ma on the Franc?
Yes it seems that Swiss National Bank was in the market buying Euros and selling Gold as a way to finance the trade as their balance sheet looks pretty bad as well and no other assets are available aprot from Gold...
EURUSD 1.35 bitchez
Dollar rally has ended.
Gold dropping. Selloff?
$1214 WTF
Same reason as above? People selling paper profits to cover debt/longs.
There's a liquidity crash in the EU. Selling USD and Gold to cover. LB part deux coming your way courtesy euro-banks.
EDIT: consider it a gift from europe to stack up on physical
Odd that gold stocks are up? In the last crisis both bullion and stocks crashed?
GLD is blown as I type.
Gold stocks are up because gold only has one way to go and that's up. All this dip will do is bring more buyers in the market demanding physical. COMEX will bust not because of where the price of gold is going, it will bust because of "failed to deliver".
During a liquidity crises people sell their most liquid and profitable assets to pay debt/margin calls/cover losses in less liquid and positions.
This is normal. The markets are infact acting quite efficiently right now.
It ultimately creates a buying oppourtunity as pretty much everything gets sold with reckless abandon.
This is a panic. To survive: don't panic.
Euro up
Gold down
War coming this weekend
Back the truck and Load up on gold and silver
Just logged on now for the first time to see gold down HUGE! I may very well take your advice and get more Au!
Any other news on why gold is zooming down?
All are welcome to let the Bearing know!
Beautiful avatar / photo Oracle!
+ $1210 (?)
Stop hittin on the chicks....this is serious business, Do. ;-)
It's okay. I identify with the roller bearing guy. I have property in S.A just like he does and one day I may end up retiring in the farm in the Peru frontera del sur
Wow! I guess you know that my wife is from Peru, became a US citizen in Dec 2008. We've been married 25 years (Aug), you guys don't have to worry about me hittin' up even the the prettiest!
Too old! LOL.
If Obamacare leads to disaster and they raise taxes way high and/or become dictatorial, we may move down to Peru, she retained her citizenship there as well. Y hablo el idioma.
We have a bearing business there in Lima, but no property. Her sister and husband run the company.
A friend of mine is also married to a Peruvian lady. He recently came back (they like Lima's summer and avoid US winter) and told me that condo prices are still skyrocketing. Sounds like a Bubble...
Yes, if we move to Peru we would take everything out of the USA. Push the "AMF" button if you will...
There's no way to say what is going on. Money is moving but where it settles in at who can say if they aren't pushing the buttons.
Funny feeling Euro will scream back down on Euro markets closing. Once the day is done and the dirty work of raising cash is over, the major mispricing of the Euro is left for all to see...and short the hell out of it. Could absolutely junk the US markets in the process.
Watch out.
What mispricing do you speak of?
The USD is highly overrated. Got nothing to back it up with.
All FX's must be viewed relative to each other...I don't think we are at the point of questioning whether the US states will be seceeding and creating their own currency to devalue their debts. Seems a strange concept when applied to Cali or Illinois. The US has continuity and a mono culture, mono language that all support the continuity of the dollar. A break up isn't on the table (yet) and US has the ability to resolve all it's problems (it's just the willingness to deal w/ the pain that's lacking). All unfunded liabilities can be resolved because they are owed to us and we will ultimately have to cut our own pay (depression). As Ben B sez, we can also pay our foreign debts, it's just the purchasing power of that pay back that's in question.
The Euro zone, turn it all around. Countries are on the verge of leaving...huge disprecancies in culture, long standing animosities. Bad demographics. The Euro was created to avoid the next WW but unfortunately they didn't agree on a manner to cap countries spending (as our states are forced to balance up annually). So, Euro crack up is likely but dollar crack up isn't on the table.
Point taken dollar sucks but you have to understand how the Euro sucks that much more and can't be overcome by the Eurozone's larger population / GDP any longer.
"Countries are on the verge of leaving.."
Estonia will become the 17th member of the euro area on 1 January 2011.
http://www.actionforex.com/analysis/daily-forex-fundamentals/estonia-to-...
Gun to their heads, no doubt.
Gun diplomacy is an american specialisation, Europe works on different principles.
Right, right, those peace loving, recently genocidal europeans.
How good US never commited a genocide. North American Indians just emigrated on the Moon, I guess.
Backed by oil and the need to pay dollar denominated debt, ignore at your own peril.
Fuck my ass I hope you're right. I lost a shit load of money!
Indeed, there was a brief WTF! But I'm in on conviction, doubling down on the dip. Europe is more fucked than the U.S., and I intend to profit from that.
I agree but my problem was even worse. I was short the eur/aud. I got stopped out but I think you're right. I'm gonna short the eur/usd now too.
Agree, this Euro move looks like a good short.
I think we continue to derisk across the board, which includes Gold unfortunately.
I still think the inflationary deathspiral is coming but maybe just not yet.
EURUSD 1.05 bitchez
Stop making sense!
Did you say something Hb?
Sorry I was mesmerised by the avatar... so that's how all this madness ends... maybe a "ZH Group Suicide Pact" at S&P 666, for the grand finale!
... or maybe it's just Leo at 666
Things get crazy when dividing by zero (the true value of fiat).
+++GOLD
PMSL
And of course the Bank of England has made sure gold is very liquid with GLD paper. So once again we get to celebrate all this good news today with more affordable precious metal prices.
Yup. Today is all about unwind and tinfoil hats. US banks are down because some realize the interconnectedness and incestuosity reaches across oceans fast these days.
This is sux, was short euro from 1.2390 and now down around 2k
crap
Where is the safest place to keep cash accounts these days?
US banks? I don't think so.
Chinese banks? No.
Russian banks? No.
Arab banks? Maybe.
Swiss banks. Definitely.
Bank of Mattress. There is a branch near you.
personal, safe bank of velobabe†
LOL..., are you sure that is safe?
my safe, is sooooo s a f e.
i love it, never knew how much fun owning my own heavy duty safe was.
makes me feel important.
f u c k banks.
fuck lurking junkers.
what gives, content, picture, freedom, jealousy?
My apologies..., apparently my mind slipped into the gutter, for a moment, and I misunderstood your meaning.
Safes are way cool for me too velo.
Lots of interesting technology because the safecrackers are always trying to counter new security features of the manufacturers. Never ending war between them.
Claymores, mercury switches, pink mist bitchez.
While i do agree with the liquidity argument, i don't understand why GBP, CHF are growing as well? I guess it is more complicated than that. Market likes austerity?
mmm just lost a load of fiat on my physical. But was a fiat gain from 668 and 900. Shame but I will now be buying at 1190 another chance to move from reckless promisory notes into someting solid.
VFR
You had your one year Zero Hedge birthday 2 days ago.
Happy ZH Birthday VFR. The community thanks you for your contributions.
Total bullshit. Your just talking your short book, Turden. Eurodollar (3 month deposit) futures are up on the day and a full 50 beeps above their 5/25/10 lows.
The Euro currency move is not that dramatic, less than 2 SD over the average daily move (60 day average). In fact, the range, far from "one of the greatest in the history of the pair", was exceeded three times in the last 30 days alone!!!
What you've got is a classic short covering rally in the Euro currency on the heels of the successful Spanish auction today, something that you've not seemed to report.
This site is starting to lose credibility as it tries to grab doom and gloom headlines. I'm not saying that all is rosy, just trying to keep it real.
"Successful Spanish Auction" = ECB buying
Is this real enough for you?
And go T-Bond benefitting the printing frenzy of the Fed?
Zerohedge doesn't need any defending but fuck you. There's going to be MAJOR and I mean MAJOR currency dilocations before today is over. They are just happening blind.
2 figures short covering, is it real? just asking
Spanish auction was covered here early morning and it is not rosy as well
200+ points above benchmark for AA-rated debt with weak demand and rising yields after is successful? What's unsuccessful for you, a nuclear war?
I wonder what kind of effect the recent Euro weakness had on EZ exporters? Suppose we will have to wait untill next thursday to find out the nature of todays liquidity squeeze, or half-year and quarter end flows. There might be some worth in consider ing that CB's are "reallocating" some of their $ reserves since US tsry yeilds are so thin.
Secondly you also have to consider that there "was" >3bln of strikes today at 1.24-1.25. That's not to be sniffed at, either. So a short squeeze isnt out of the question here.
Agreed. While I appreciate a lot of Tyler Durden´s investigative and informative news service, a lot of headlines recently are doom and gloom. I would really appreciate a more balanced reporting. I mean, I see people around me buying their new Porsche, Aston Martin or Jaguar. I see even people visting shopping centers actually spending their pay check. I see more liquidity in the system than one might think. German car manufacturers working Saturdays, Australia hiring in the mining sector, India boosting infrastructure investment, Brazil boosting exports - where is the analysis of all those "micro events" ?
Strictly blood and guts here MrTrader. Its fun. Dont let it cloud your judgement, make your own mind up. Too many people in pain here, you wont find any middle ground. They are all dirty big bears.
Here Here! Bravo!
Again, I'm not trying to say that all is rosy, but the ZH headline connecting today's Euro move as a "Scramble To Cover Liquidity Needs" by Eurobanks is bolloks and (npi) discrediting. Indeed, it's just the opposite, as it's the Euro shorts that are scrambling to cover and the gold bugs that are bugging, as they realize that the sky is not falling (at least today).
But perhaps the sky is falling, and that is why, despite poor housing numbers, lumber is today limit up on the Merc (basis, post hurricane and full contango). Maybe it's HFT, conspiracy, Greek bankers parking money..bad data from faulty Iphone antennae blah..blah..blah..
The real worry is that the Euro rally will evolve into a full dollar rout with disappointing TIC data. Way too early to make that call...for now it's just mean reversion, and today's DOW selloff is just the test of the lower boundary of a six month trading range that may or may not hold, which interestingly enough, the DAX is nowhere near testing, despite the reported liquiidity squeeze in Euro banks . Now that's a divergence worth noting!
Fiats a go go.
Simply euro short covering. No suprises here. But still bad news for equities.
agree on the short covering...here here for a non-panicked assessment. But since negative euro and equities have correlated (almost tick for tick at times), too early too tell if it is "bad news for equities," especially since strength in the Spanish aucton prompted the Euro rally.
if Euro strength evolves to a full scale dollar rout (wayyyy too early to tell, since it's merely mean reverting here), with weak TIC data, that would be truly bad news. Until that, we are simply testing the lower boundaries of a 7 month trading range on the DOW...nothing more nothing less... It might hold (after taking out the limit buy orders lurking below the old lows), and provide a nice buying opportunity for the next leg up in the range. Or it might sell off some more. Who knows? Based on the pessimism on this site, I'd bet on it holding and a surprise bounce off better than expected employment numbers tomorrow (rigged or otherwise!)
Negative divergence between the BDI and Gold tells a story about today and the future...something had to give... it was Gold
http://investmenttools.com/images/wfut/crb/bdi_gc.gif
.
Very strange move. Look for an Israeli attack on Iran over the July 4th holiday.
Liquidity crises...Gold, oil way off too. A lot of somebodies need cash now. Everything must go, sell all the winners first.
Could this be a vote on austerity vs. the printing press?
That worries me too, as I'm short the euro, but I'm banking on the notion the predicted european liquidity crisis explains this blip. It ought to go south again thanks to centrifugal forces within the euro, and sovereign debt dominoes.
Rather you than me my friend. Rather you than me.
The movie Rollover comes to mind:
www.youtube.com/watch?v=GPYLJoq_40Y
good to know I'm not the only who got surprised by this bullshit.
disclosure: short eurusd
These free floating currencies are a sick joke played on all the productive sectors of society as the insiders take all the surplus.
This cyberspace reality of numbers going up and down is forcing us all to waste vast amounts of time trying to preserve our diminishing wealth.
Is anybody going to call time on these snake charmers ?
Rumors the banks are dumping gold onto the market in an attempt to get enough liquidity.
Ahh. OK. Thanks for sharing the rumor (no sarcasm).
The banks want some liquidity by selling some Gold. I will do my part to mop up some of all that liquidity by buying their Gold.
Ningun problema!
was watching last night at 2200 it started it will continue to run.....
a panic? i want to smell it but am barely getting a wiff, this has in no way reached the mainstream yet, will they contain it before it does? (by 'contain' I mean the EU maybe has a bernanke laced helicopter -can it be collectively flown with two dozen representives all grappling the controls - will it fly?). The all clear has been sounded, is the elephant in the room actually a trojan horse full of suited warriors? Personal status : casting a suspicious eye in the direction of the MSM and ready to ramp it up to a glare.
Hum. I was a lucky guy today long EUR / JPY. Enough bled the last couple of days, though.
Certainly a lot of details like that to take into consideration. Thanks windows vps | cheap vps | cheap hosting | forex vps