EUR/USD holds near the 1.37 pivot

On Friday, markets counted down to the US payrolls report. The report was close to the consensus. Initially, the report didn’t give currency markets a clear direction. Later in the session, stocks fell prey to profit taking, sending USD/JPY lower. There was also quite some intraday volatility in EUR/USD. This was also due to press reports/speculation on the ECB preparing for QE. This prevented a rebound of the euro against the dollar. The pair finally settled in the 1.37 area.

Overnight, Asian markets follow the correction of US equities on Friday, but . the losses are mostly moderate. Japan is the exception the rule. Friday’s decline of USD/JPY puts a negative spiral in place with the decline in USD/JPY and in Japanese equities reinforcing each other. Yen traders are also looking out for the outcome of the 2-day BoJ meeting starting today. The market is divided as to whether the BOJ will already step up money printing as the Japanese economy faces the impact of a sales tax hike this month. Today, there are few important eco data on the agenda in the US and in Europe. Markets will keep a very close eye at the comments from ECB policy makers. There are speeches of ECB’s Mersch, Nowotny and Weidmann. ECB’s Constancio will present the ECB annual report before the EMU parliament. This offers a forum for hints on further policy action, if deemed necessary. We expect the ECB to hold the line that all options, including QE, remain open to address the issue of inflation staying too low for too long. This is no big news. At the same time, the debate as such might continue to cap the topside of EUR/USD. EUR/USD might continue a sell-on-upticks pattern, especially if US data would support the case for a US rate hike in the first half of next year. European markets will probably start the week in risk-off modus, following the price action in the US and Asia. However, as such this is not a big additional negative for the euro. Lower US bond yields might even weight on the dollar across the board.

From a technical point of view, the picture for the dollar is mixed. The rebound in USD/JPY (and in EUR/JPY) has run into resistance. For now, the correction in USD/JPY remains limited. Even so, USD/JPY is driven by conflicting factors (Equity performance, core bond yields, BOJ policy expectations). The correction suggests that a clear break of 105.44 is no done deal yet.
The picture of the dollar against the euro is different. A gradual rebound of the dollar looks in place. 1.3643 is key short-term. A break below this level would open the way for a retest of the year low at 1.3477.

Sterling stays in short-term consolidation modus

On Friday, there were important UK eco data to guide the price action in sterling trading. The US payrolls were inconclusive for global markets and had no big impact on cable, EUR/USD and thus neither on EUR/GBP. The latter mostly followed the intraday price pattern of EUR/USD. EUR/GBP closed the session almost unchanged at 0.8268.

Overnight, the euro is drifting marginally higher with EUR/GBP changing hands in the 0.8270 area. Cable is holding a tight range in the 1.6575 area.

Later today, there are again only second tier eco data on the agenda in the UK. EUR/GBP traders will keep an eye at the comments from ECB policy makers on a potential start of QE to prevent a period of too low inflation for too long in EMU.

EMU QE is no done thing yet, but the debate as such might continue to cap the topside in likes of EUR/USD and EUR/GBP.

The technical picture in the major sterling cross rates remains a bid ambiguous. The downside in cable is fragile in case of a broad-based rebound of the dollar. A decline towards to 1.6466 support could attract stop-loss selling in cable too. Even so, in a longer term perspective we maintain the view that both the broader picture and the UK economic and monetary situation points to more downside in EUR/GBP.