The tide is turning against the euro

Traditionally, Asian central banks intervene in the markets to buy the dollar and keep their local currencies competitive. Well, we’ve now come full circle. The euro zone crisis has caused weakness in Asian currencies to such an extent that central banks are now intervening to buy local currencies.

How does that impact the majors? It impacts EUR/USD quite directly. Asian central banks have for the last several years diversified a certain percentage of the dollars acquired via intervention into euros, keeping a steady bid under EUR/USD.

Now that they are selling dollars, the Asian central banks are also selling EUR/USD, getting rid of some of the euros acquired to diversify their reserve basket. IF this trend continues, Asian central banks will be steady sellers going forward.