next report will resume on march 04
On Thursday, EUR/USD traded sideways to cautiously lower. There was a flood of negative eco data on both sides of the Atlantic. However, initially they had no lasting impact on EUR/USD trading. On the contrary the positive start of the European stock markets, supported by the UK banking plan, even helped the Euro to book some moderate intraday gains early in the session with EUR/USD testing offers in the 1.28 area just before the open of the US markets. US equities initially showed resilience in the face of the awful US data (Claims, durable orders and new home sales). This gave EUR/USD some downside protection. However, the cautious investor optimism was fragile and short-lived. Stocks slipped deeper into the red later in US trading and this dragged EUR/USD lower too. Uncertainty on the effects of the US budget measures (e.g. on the healthcare sector) weighed on stock market. EUR/USD closed the session eventually at 1.2744, little changed compared to 1.2723 on Wednesday. In a longer-term perspective EUR/USD continued the indecisive trading pattern that is already in place for quite some time.
Today, the eco calendar is very long, but most of the data are not really market movers: Markets will keep an eye on the first revision of the US GDP and on the Chicago PMI. However, we don’t expect these data to bring really high profile new info to the (currency) market. Trading in EUR/USD will again be driven, by global factors. Stocks are the most evident driver for intraday trading. However, recently even wild swings on the stock markets were unable to push EUR/USD out of the established barriers. We also keep an eye on the impact of an joint announcement of a plan by EBRD, EIB and the World Bank to shore up banks and businesses in eastern and central Europe. Uncertainty in this region recently weighed on the euro. Nevertheless, the negative start on the European stock markets will remain the dominant factor for trading. So, in a day-to-day perspective we start the session with a euro cautious bias.
Global context. Since the start of the year, EUR/USD was on the defensive. The deterioration of the European government finances and the widening intragovernment spreads fuelled a euro-negative sentiment. On top of that, the euro remained a gauge of global risk aversion. Negative headlines on the development of the global crisis had a negative impact on the euro. The US eco story is also far from brilliant either, but the dollar took advantage from its safe haven status. Since mid January, the EUR/USD decline shifted into a lower gear but any attempt to change the trend immediately ran into resistance. The renewed flaring up of risk aversion and market fears that the deepening of the crisis in Central and Eastern Europe might cause a new adverse loop for the European economy and its financial sector caused EUR/USD to drop below the 1.27 support area last week. Nevertheless, the price action in EUR/USD is very much driven by global market sentiment. Yesterday’s price action again indicated that the topside in EUR/USD remains difficult as long as there is no sustained improvement in global/stock market sentiment.
From a technical point of view, the correction from mid December brought EUR/USD again in the previous sideways range (capped by the 1.3300 area). The pair tested several times the 1.2765/00 support area (previous low) and the break of this area deteriorated the picture for the single currency and brought the 1.2330 area again in the picture (2008 low). A break below the 1.2330 area would signal big trouble for the single currency. In a day-to-day perspective, yesterday’s correction to Tuesday’s rebound only confirms the picture that the topside in EUR/USD is capped. Range trading in the 1.25/1.31 range looks the most viable scenario for now.
On Thursday, USD/JPY extended the gains from the previous sessions. There were some moderate gains in Asia and in Europe, but the move again accelerated early in US trading. The poor US data apparently were no additional negative factor for the export driven Japanese economy. The decline in US stock markets at the end of the US trading session didn’t bring any relief for the yen. USD/JPY closed the session at 98.52, compared to 97.39 on Wednesday.
This morning, there were plenty of eco data published in Japan. Labour market data were mixed (Jobless rate at 4.1 % better than expected; Job-to-applicants ratio 0.67, worse than expected). Production data came out very weak (-10.0% M/M -30.8 % Y/Y) but in line with expectations (Tokyo) inflation data were slightly above expectations. Housing starts declined more than expected (18.7 % Y/Y). In general, the data again painted a very negative picture of the Japanese economy (especially from the supply side), but the data were not really worse than expected. The yen regained some ground after the data and, despite the poor close in the US, the Nikkei closed the session with a 1.48 % gain. For now, we see this morning’s correction in USD/JPY as corrective in nature. Japanese eco data most often have no lasting impact on yen trading.
Elsewhere in the region, the Korean Won set a new multiyear low against the dollar.
Global context. Looking at the charts, USD/JPY set a reaction low in the 87.15 area in December. Since then, the pair entered calmer waters. The long-term trend in the pair remains negative, but the downtrend ran out of steam below 0.9000 area (amongst others on fears Japanese officials will voice concerns on the ascent of the yen if USD/JPY comes closer to the 0.8710/15 reaction low). Recently, the pair even made a decent rebound that accelerated last week and early this week. The underlying yen-momentum obviously has weakened. This time, the yen decline was not driven by improved market risk appetite, but by rising worries on the Japanese economy. Last week, we installed a cautious buy-on-dip approach in this pair. On Friday, the pair came close our first short-term target (target 94.65, reaction high 94.38) and the nearing of this high profile resistance temporary slowed the up-move. However, Tuesday’s break above 94.65 cleared an important hurdle making ST picture for USD/JPY positive. The next important resistance comes in the 100.55 (04 Nov high/102.20 2nd target double bottom off 94.65).
On Thursday, EUR/GBP gave up part of Wednesday’s gains. However, as was the case for EUR/USD, trading in this pair developed within the established trading ranges. The measures for the UK banking sector and the appearance of BOE governor King caused quite some debate on the markets and in the financial press. The banking plan eased the pressure on the stock market, but the impact on sterling trading was not that easy to asses. EUR/GBP moved a few ticks higher early in European trading, but the pair ceded ground in US trading. In its appearance before the parliament’s Treasury committee Mr. King made an in depth analysis of the recent financial crisis and its economic consequences, but we didn’t see any high profile news for the (currency) market. EUR/GBP close the session at 0.8903 compared to 0.8956 on Wednesday.
Overnight, the UK Gfk consumer confidence came out better (less negative) than expected as it improved from -37 to -35. However, at least for now, this had no impact on EUR/GBP trading. There are no major UK eco data. However, the debate on the UK plans and its impact on the budget will get ample market attention. Yesterday, the market assessment on those factors was not that negative.
Global Medium term context. At the start of 2009, EUR/GBP made a forceful correction after the steep gains mid-December. A first rebound ran into resistance in the 0.95 area and another forceful correction even caused the pair to test the high profile support (0.8663 area previous high) but the test was rejected. The subsequent rebound called off the short-term alert in EUR/GBP and makes the picture neutral again. From a fundamental/LT point of view, we remain sterling cautious. Last week, we advocated that the 0.9085/0.9130 area could turn out to be a difficult hurdle short-term. In a day-to-day perspective, we remain neutral for EUR/GBP and wait for a technical signal. ST trading is confined in the 0.8638/0.9072 trading range. There are some tentative signs that the bottom in the pair becomes a bit better protected, but we don’t want to font-run on this as long has we don’t get a clear technical signal.
