On Friday, EUR/USD was still under moderate downward pressure. Price action was again mostly driven by global sentiment. So, EUR/USD again took a close look at the stock market indices. The European eco data (business confidence in some member states and the first reading of the European PMI surveys for January) came out slightly better/less negative than expected. However, the data had hardly any impact on EUR/USD trading. The rebound on the US stock markets towards the end of the session helped EUR/USD to regain most of the intra-day losses and the pair closed the session at 1.2975, compared to 1.3001 on Thursday.
Today, the US eco calendar contains the leading indicators and the existing home sales. In Europe, there are no important data on the economic calendar.
Since the start of the new year, the currency market gradually gave more weight to negative news coming from the euro zone. The deterioration of the European government finances, pressure on the Sovereign credit ratings in Europe and the widening of intra-govie spreads became an ever more important factor for EUR/USD trading. The dollar has regained the advantage of doubt over the euro, especially in times of rising global market pressure. At the end of last week, the EUR/USD decline shifted into a lower gear. However, at least for now no trigger is available to change this short-term euro-negative sentiment. EUR/USD price action is mostly driven by signs in global risk appetite/risk aversions. However, if pressure on the intra-EU government bonds spreads would ease, this could also be an indication that global market sentiment towards Europe and the euro would turn less negative. Longerterm we remain skeptic on the chances for a protracted dollar rebound. The next milestone to get some insight in the further steps of the US (monetary) authorities of course is the US Fed meeting and interest rate decision on Wednesday. However, we don’t expect any high profile new steps. However, it will be interesting to see whether any new measures are in store in case longer-term US Treasury yields were to rise further. (cf last week’s debate on the yuan exchange rate and the potential impact on Chinese buying of US treasuries).
From a technical pot of view, EUR/USD in December broke above the previous sideways trading pattern and an important downtrend line (cf. graph). This made the MT picture for EUR/USD positive. However, a forceful correction kicked in and EUR/USD dropped below the top of the previous sideways range (1.3300 area). This made the picture again neutral to short-term negative. In a day-to-day perspective, we still take a close look at the established ST downtrend channel. (cf. graph). A sustained break above the channel top (Red line, today 1.3120 area) would improve the ST technical picture. A drop below the LT downtrend line (green line) from the highs would be an additional negative (cf graph). For now, the pair settles in a ST 1.2750/1.3100 trading range.
On Friday, USD/JPY showed some intraday swings in line with the gyration on the global equity markets. Global sentiment was negative in Asia and early in Europe and this caused USD/JPY to test bid in the 88.00 area. However, the pair rebounded later in the session as global tension eased. The pair closed the session in the 88.75 area, not that much different from the 88.91 close on Thursday.
This morning, there were no important eco data on the agenda in Japan. Japanese stock markets opened with some cautious gains, but these evaporated later in the session. A lot of other Asian markets are closed for the Chinese New Year.
Looking at the charts, global market stress and overall dollar weakness in the wake of the Fed’s announcement on quantitative monetary easing hammered USD/JPY and the pair set a reaction low in the 87.15 area on December 17. Since then, the pair entered calmer waters, but last week the pair retested the lows. The long-term trend in the pair remains negative, but recently we warned that the downtrend might slow below 0.9000 (among others as Japanese officials will voice concerns on the ascent of the yen if USD/JPY comes closer to the 0.8710/15 reaction low). Over the previous week’s, we advocated at least partial profit taking on USD/JPY shorts in case of return action towards the lows (87.00- area) and indicated that there could room for a ST correction/rebound in USD/JPY. The momentum/technical picture remains yen positive, but we don’t feel comfortable to add/reinstall to yen long exposure at the current level. Buying safe haven assets at the top of stress also includes a serious risk. The risk for interventions might continue to cap the upside of the yen, especially against the dollar. We keep a wait and see approach and look for a more pronounced up-tick (caused by interventions or by something else) to add/reinstall USD/JPY short exposure.
On Friday, sterling remained under pressure, especially during the European trading session. Sterling trading close to key support levels in some major cross rates (cable/ GBPJPY) added to the market nervousness and also filtered through into EUR/GBP trading; The UK data were mixed with a steeper than expected decline in Q4 GDP (-1.5% Q/Q), but better than expected retail sales; However, global factors continued to set the tone for trading. Sterling performed a guarded comeback later in the session and EUR/GBP closed the day at 0.9402, compared to 0.9370 on Thursday.
Over the weekend, there were again some high profile headlines from UK policy makers in the press. BoE Blanchflower repeated its view that UK interest rates should be cut to near zero. UK Minster Myners in an interview said that the Banking system was within three hours of collapse on Oct 10.
Today, only the BBA net mortgage lending figures are on the agenda.
On the technical charts, the break above a series of high profile resistance levels in November/December has made the long term technical picture outright positive for EUR/GBP. Since the start of 2009, EUR/GBP showed quite a forceful correction. Last week, the sterling rebound ran into resistance. The (negative) market reaction to the UK banking plan was an additional indication that the sterling rebound against the euro has run its course. The break above the 0.9130-neckline (double bottom) made the ST picture again sterling positive. Growing market speculation that UK interest rates will move to zero soon and that the UK is still rather pleased with the depreciation supports the sterling negative sentiment. Recently, we had a cautious buy-on-dips approach in EUR/GBP. Last week, the decline of sterling shifted into a lower gear, but the trend remains intact. We hold on to our established buy-on-dip approach.
