Yields on ten-year French government bonds (OAT) jumped to 5.10% - the highest since 2002. Rising yields mean investors are demanding an ever-larger risk premium to lend money to the French government.
The reason - doubts that the authorities will get the budget under control. Last week the country saw riots, with new protests announced for Saturday. On Friday, Moody's reviews France's credit rating, and the market is pricing in a downgrade: in April the rating was affirmed at Aa3 with a negative outlook.
The second burden - oil. Brent rose above $108 a barrel, to a five-month high, amid tensions in the Middle East. For the eurozone, expensive oil means accelerating inflation with weak growth - that is, the risk of stagflation.
The euro's fall was contained only by a weak dollar. US government bond yields have pulled back from recent highs, and investors expect the Fed to pause rate hikes at next week's meeting. ING sees a sideways range for the DXY dollar index as the base case, but does not rule out a dip into the 101.25-101.30 zone.
Near-term reference points: Moody's decision on Friday, protests on Saturday and the Fed meeting next week. US weekly jobless claims came in at 194k.
Did you short the euro on this plunge?
The move from 1.1250 to 1.1200 is fifty pips that get chewed through in an hour. The only question is how much size you had on: on a deposit of a couple thousand, a day like that closes out with enough for a coffee. Prop trading solves exactly the notional problem: the company gives you a trading account after a paid evaluation stage, and profits are split according to a pre-agreed share. Ahead are the Moody's rating and the Fed meeting - weeks like these in the euro repeat, and it's better to approach them with a different position size.