Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

The Euro Rally Is Largely Attributed To Decreasing ECB Debt Purchases … The Resulting Liquidity Squeeze Threatens A Deflationary Vortex

|Includes: ACWI, AUSE, DFE, EUFN, EWP, FEZ, CurrencyShares Euro Trust ETF (FXE), FXI

Ambrose Evans-Pritchard of The Telegraph writes: The ECB’s loans to credit institutions fell from €870bn to €635bn in the two weeks to July 9.  “This is the equivalent in central banking of the Charge of the Light Brigade,” said Tim Congdon from International Monetary Research. Cash reserves in the interbank market have fallen by a third in days. No wonder three-month Euribor (the stress gauge) has risen to an 11-month high of 0.86pc. The funding squeeze has turbo-charged the euro rally, pushing the currency to 8.67 Chinese yuan.

An inquiring mind asks: could the current funding squeeze lead to an all out liquidity evaporation and deflationary vortex where the Euro, FXE, European Financials, EUFN, and the Euro, FXE, all rapidly fall lower in value?  …. click on chart to enlarge.

Chart of the Euro, FXE ….. click on chart to enlarge.

The chart of DNH, FEZ, EWP and FXI shows that over the last five days, China and Asian stocks have fallen considerably and European stocks are off slightly …. click on chart to enlarge

The chart of WisdomTree Europe SmallCap Dividend, DFE, shows its 2% fall today on risk aversion seen in recent falling of European shares, FEZ, and European Financial shares, EUFN ….. click on chart to enlarge.


US Banks, KBE, have fallen to 23.34. World stocks, ACWI, are up holding just above a ledge of edge of support at 39.50.

Disclosure: I am invested in gold coins