HIGHLIGHTS
- Bond Markets:
- US Treasuries slightly higher in uneventful trading session
- Bund sentiment still bullish
- Currencies: EUR/USD ready for a new attack?
- News: BoE Minutes and some US data might keep traders awake
CURRENCIES: EUR/USD ready for a new attack?
The EUR/USD pair is again trying to move higher. Yesterday the pair reached the mid 1.28 area.
Recently, the USD had tried to gain back some of its losses. The EUR/USD pair had moved after all since mid October from the 1.25 area to the 1.29 area. The pair dropped back to the 1.2760 zone on some profit taking/correction, but this seems as far as it went.
The uptick in this pair over the past days though again puts the focus on the topside at the recent highs at 1.2900 and even the year highs at 1.2970.
There is not one big immediate reason behind this latest upmove, rather than some unwinding ahead of US market holiday on account of Thanksgiving tomorrow (early closing today). Still, it shows some distrust of the dollar in underlying sentiment.
People are not so much at ease with dollar long positions at this stage. The slowing of the US economy is making them fearful rate cuts may be needed and this is undermining dollar sentiment in general we believe. Yesterday, the White House downgraded its view on US economic growth for this year and next.
From another point of view, Central bankers are regarding this slowing of US household expenditure as a signal of global rebalancing (cfr. RBNZ’s Bollard), which is desired so much. ECB’s Trichet referred to the G7 communiqué asking more flexible rates, but there wasn’t anything really new in the words of the central bankers yesterday. Nevertheless, it keeps the attention on the issue (see also USD/JPY below).
Because of the holiday, some data have been brought one day forward such as the initial claims and the Michigan consumer confidence (final figure). These don’t seem major market movers though.
EUR/USD (30 days): topside in the picture again
Technically, a dollar negative sentiment was installed, as the pair moved back above the 1.2630-40 zone. Longer term this is still a broad sideways trading pattern that this pair is laying down though with tops at the 1.29+ zone.
Support is seen at 1.2816 (daily envelope), at 1.2794 (downtrendline off year high) and at 1.2760 (Nov 17 low).
Resistance is seen at 1.2879 (daily envelope), at 1.2900 (Nov 10 high) and at 1.2939 (Aug 21 high).
The EUR/GBP pair was under some downward pressure after some better UK data very recently. A test of the upside at 0.68 was rejected. Yesterday the pair drifted back lower to the 0.6750 zone, but there some bottom was found.
Over the past days, the sterling was a bit helped by M&A talk with the market looking at a cash bid of CSN on Corus Group PLC (at 5.3 B £) and rumours of a bid on Home retail Group, valued at 3.7 B £.
Today, all eyes will be peeled for the UK BOE MPC Minutes of the last meeting. At this meeting, rates were hiked to 5.00%. An 8-1 outcome is expected. The Minutes could reveal more on the future rate path of the bank for the coming 3 months or so.
Until further notice, we keep a buyeuro- on-dips attitude, but prefer a wider dip to the mid 0.67 zone before considering to buying back euros/adding to euro long positions.
A move above 0.6794, the neckline of a longer term double bottom is a more difficult step, but would signal more euro bullishness.
Some attention today will also go to French consumer spending, but normally it isn’t such a market mover.
EUR/GBP (30 days): between 0.67 and 0.68?
Up until now, the EUR/GBP pair was well captured in the long-standing 0.70 to 0.67 area. This downward support zone has held up though recently and rebound developed, but this also ran into some resistance last week.
Support stands at 0.6749 (daily projection band bottom), at 0.6742 (yesterday low) and at 0.6734 (neckline double bottom).
Resistance comes in at 0.6764 (STMA), at 0.6774 (daily envelope) and at 0.6794 (last week high).
USD/JPY ticked down slightly over the past 24 hours, from the 118 area to the 117.50 zone.
Some say the yen could still be held back slightly on the fact that the BoJ did not discuss the yen carry trades at its previous meeting, signalling that they are by far not ready to intervene to halt any yen weakness. That was our view already well before though and we believe not many market players had believed in such an option in a realistic fashion. That is why we believe it will have little continued impact.
The market should return to the agenda for the day. And that is US and Japan holiday approaching. That means market players may want to tone down further the long USD and short JPY positions in the coming hours. That should be slightly yen positive and bring USD/JPY down a bit further throughout the day, barring other news.
The attention drawn by central bankers yesterday on the global imbalances and how to resolve this is also a factor, which could be weighing on USD/JPY. A strengthening of the Asian currencies is an often-heard demand for global rebalancing, with a lot of pressure on the Chinese yuan but also the Japanese yen at times.
By the way, Japan’s trade surplus this morning came out well below consensus expectations, with stronger growing imports. Rebalancing under way?
Regarding USD/JPY trading, we continue to propose a sell-USD-intostrength approach. The pair still is caught in a sideways pattern between the 118.59 and 116.50 zones, but we see some downside test possibilities.
USD/JPY (30 days) sideways within tight range for now
Recently, the topside in USD/JPY had become a bit more difficult, as the test of the year highs was rejected. However, the downward correction that was developing afterwards also was aborted. The pair is clearly in a sideways mode for now. Only a move below 116.57 would herald more to come.
Support is seen at 117.51 (daily envelope), at 117.31 (downtrendline off ’98 high) and at 116.94 (Bollinger bottom).
Resistance is seen at 117.94 (today high), at 118.16 (daily envelope) and at 118.30 (LT MA).
