On Tuesday, EUR/USD again showed some intraday volatility, but in a broader perspective, the pair extended the very gradual slide that was already in place for quite some time. On Monday, the pair felt some (albeit moderate) pressure from the selloff on the global stock markets. Market disappointment on the outcome of the EU summit with respect to central Europe, was a negative factor, too. Yesterday, global market sentiment was initially less negative and this gave the euro some temporary downside protection. EUR/USD rebounded from the mid 1.25 area in Asia to test offers at around 1.2675 during the morning session. However, the move again lacked any intrinsic power to build out the gains. EU commissioner Almunia warning the potential spill-over effects from the economic and financial crisis on Eastern Europe towards the west again was again a good excuse to block the EUR/USD rebound. On the other hand, the EU commissioner indicated that there was some kind of plan to support/bail out to support countries, if needed. Nevertheless, later in the session, markets focused again on the disappointing stock market performance. A testimony from Fed’s Bernanke that additional resources are needed above $700 bank rescue plan already in place also weighed on global market sentiment, but not on the dollar. The US currency still takes advantage from its safe haven status. EUR/USD closed the session at the lower end of the intraday trading range at 1.2561, compared to 1.2578.
Overnight EUR/USD felt pressure from a disappointing Q4 Australian GDP re lease. Positive news headlines on the Japanese economy and a decent stock market performance in Asia were not able to change fortunes for the euro.
Today, the eco calendar contains the US ADP labour market report and the ISM non-manufacturing. Markets will especially take a close look at the ADP report as there is a lot of market speculation that an extremely higher number US jobs were lost during the last month. Levels of well above 600K are seen as likely. From a market point of view, it will be interesting to see the market reaction to a very negative figure. Later in the session the Fed Beige book will be published.
Global context. Since the start of the year, EUR/USD was on the defensive. Europe was seen more vulnerable to global crisis and less flexible in addressing the fall-out from the financial turmoil. The deterioration of the European government finances and the widening intra-government spreads was seen as illustration of intra EMU tensions and fuelled the euro-negative sentiment. On top of that, the euro remained a gauge of global risk aversion. The US story has also been far from brilliant, 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 of the euro regain ground immediately ran into resistance. Mid February, 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. This illustrated to euro skeptic sentiment. A change in the global negative sentiment is needed to give the euro some better downside protection. At least for, we don’t see such a trigger available. By default, the gradually euro downtrend persists. Uncertainty ahead of tomorrow’s ECB interest rate decision is not help for the single currency either.
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. Yesterday’s drop below the 1.2530 area only confirmed that the ST euro picture is still negative and that return action toward the 1.2330 key support becomes an ever probable scenario.
On Tuesday, USD/JPY moved again higher after a brief intermezzo on Friday of last week and on Monday. Global dollar strength illustrating the markets’ preference for the dollar as safe haven underpinned the USD/JPY currency pair. Poor US eco data (pending home sales) and the hesitant performance of the US stock markets were not really able to deter USD-buyers. USD/JPY closed the session at 98.16, compared to 97.45 on Monday.
There were no eco data in Japan this morning. The Nikkei closed the session cautiously higher. Elsewhere in the region, the news flow was mixed. Austrian Q4 GDP disappointed (-0.5% decline Q/Q). The Chinese manufacturing PMI surprised on the upside 49.00 and this propelled the Chinese stock markets to record gains of more than 6%.
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 over the previous two weeks. The underlying yen-momentum obviously has weakened. The yen decline was not driven by improved market risk appetite, but by rising worries on the Japanese economy. Over the last two weeks, we installed a cautious buy-on-dip approach in this pair. The break above the key 94.65 resistance improved the ST picture further. The next important resistance comes in the 100.55/102.20 (04 Nov high)/2nd target double bottom off 94.65).
On Tuesday, sterling entered calmer waters after a rather steep loss on Monday. Tensions in the financial sector, that were at least partially responsible for the Monday’s sterling decline eased and basically EUR/GBP settled in the 0.8950/0.9000 area. Market speculation that the BoE might by close to a next step towards quantitative easing (Confirmation letter from the Treasury to the BoE is expected anytime soon) had no lasting impact on EUR/GBP trading. Later in US trading session global euro weakness also dragged EUR/GBP lower again. The pair closed the session at 0.8940, little changed from the 0.8949 close on Monday.
This morning, UK nationwide consumer confidence came out better than expected. EUR/GBP made a swift shift lower in Asia, but this was probably more due to euro weakness rather than to sterling strength after these consumer cadence data. Later today The UK services PMI and ant the BRC shop prices are scheduled for release. However global developments in the financial universe, and even more the additional steps to quantitative easing from the BoE will set the tone for trading.
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 made the picture neutral again. From a fundamental/LT point of view, we remain sterling cautious. Recently the 0.9085/0.9130 resistance area turned 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.
