EUR/USD continues to reach new lows

USD marginally lower as Yellen holds ‘soft’ tone.

On Tuesday; trading in the major USD cross rates developed in a guarded way ahead of the Yellen Senate testimony. The euro didn’t profit from the Greek-euro group deal. The dollar was better bid going into the Yellen testiminony. However, this dollar optimism was not justified. The Fed chairwoman basically kept the rather soft tone from the January Fed minutes. The dollar reversed the gains against the euro and the yen and closed the session little changed.

Overnight, most Asian equities are mixed. Chinese equity markets are down nearly 1%, Japan is little changed., too, probably as USD/JPY is slightly lower after yesterday’s Yellen comments. The HSBC manufacturing PMI rebounded slightly from 49.7 to 50.1. There are also headlines that China is preparing measures to stop a slump in the housing market that can be activated if needed. Even so, Chinese equities are weak. USD/JPY is trading in the 118.66 area currently. The dollar is slightly lower against the euro in the 1.1350 area. In a broader perspective, the changes in EUR/USD remain extremely limited though.

Today, the eco calendar is. The US new home sales are the exception to the rule. Yellen will give the second part of the hearing before congress. At the time of the close of the European markets, ECB Draghi, will testify before the European parliament, but we don’t expect too much new. The Big decision is out of the way. From now, markets will look out for the practical consequence of the effective ECB bond buying, which starts next week.
So, there are not that many drivers for USD trading ‘the day after’ the Yellen testimony. At the best, markets might be more sensitive of US eco data (data depended Fed). However, of late, US data didn’t gave many clear signals. So, we assume more sideways trading in the established ranges. The euro was bleak of late, and no change is expected in the run-up to effective start of ECB’s QE. For USD/JPY, stocks remain an important factor for day-to-day trading. The soft tone from Yellen won’t provide the pair much interesting rate support. So, the topside in this cross rate will probably stay intact.

From a technical point of view, 1.1534 (ST reaction high)/1.1679 (reaction top) remains our first topside reference. We still assume a sustained break will be difficult even as the Greek crisis moves to the background. On the downside, important support comes in at 1.1262/24 and 1.1098 (correction low). For these levels to be broken short-term, a substantial rise in US bond yields is needed. Recently, US data showed a loss of momentum and were not strong enough to initiate a new up-leg of the dollar. The Fed minutes were soft, but the correction in US bond yields and in the dollar were limited. We maintain a EUR/USD sell-on-upticks approach longer term, but are in no hurry to jump in at the current levels. USD/JPY tried to regain the 120 barrier after the US payrolls, but the key 120.83/121.85 resistance stayed out of reach. The yen even regained ground on rumours of an internal debate within the BOJ on the efficacy of more easing.
The pair holds well within the 115.57/121.85 trading range. A sell-on-upticks approach within this range is slightly preferred.

EUR/USD continues to reach new lows

On Tuesday, sterling set again a new multi-year low against the euro, for the third straight session (EUR/GBP 0.7317). As was the case of late, it was again due to both euro weakness and relative sterling strength. At least during morning trade, sterling strength played a role too as BoE governors gave a balanced (not too soft) assessment on the February UK inflation report before the Committee of Parliament. Later in the session, there was a slight sterling profit taking move. Cable hovered in the mid 1.54 area. Dollar weakness after Yellen helped the pair to return to the intraday highs later in the session. Cable closed the day at 1.5454 (from 1.5457). EUR/GBP also closed the session little changed at 0.7338, compared to 0.7333 the previous session.

Today, only the BBA loans for home purchases are scheduled for release. This release will only be of intraday significance for sterling trading, at best. Several BoE governors, including Carney, will attend a research conference. However, it would be strange if they would change the communication at this stage. We maintain a sterling positive bias against the euro, but a breather after the recent EUR/GBP declined won’t come as a surprise if the news flow dries up.