On Friday, EUR/USD showed some intraday volatility but after all the pair was blocked in a sideways trading pattern. At the start of trading in Europe, the pair tried to build out the gains from the previous sessions as it reached a new correction high in the 1.2955 area. However, this time, there were no real follow through gains. The rebound on the European stock markets shifted into a lower gear and this capped the upside in EUR/USD. This indecisive trading pattern was also visible in the US even as US stock closed the day in positive territory. The US data (trade balance, Michigan confidence) had again no lasting impact on trading. This gave EUR/USD downside protection, too. However, the pair closed the session at 1.2928, little changed from the 1.2913 close on Thursday.
Over the weekend, the G20 meeting in the UK tried to boost confidence as it pledged to use all means available to address the financial crisis. However, we didn’t see any specific measures to really change the course of events r on the currency markets. EUR/USD still trades in the 1.29 area this morning.
Today, the European CPI for the month of February is scheduled for release. In the US, the Empire manufacturing survey, the TIC data and the industrial production data are scheduled for release. However, recently eco data had only a very limited impact on markets. We don’t these data to be an exception to this rule. Global (stock) market sentiment will continue to set the tone for trading. In this respect, stock markets in Asia are again in positive territory which is a positive, given the huge gains of last week. Later this week, the Fed meeting and the announcement of the details of the plan to tackle toxic assets on the balance sheets will probably be important factors for trading. With respect to the latter, the events early February (sell-off after Geithener’s announcement) showed that any communication on the toxic asset plan should be specific on its implementation in order to convince the market.
Global context. Since the start of the year, EUR/USD was on the defensive. Europe was seen more vulnerable to the global crisis. The deterioration of the European government finances and the widening intra-government spreads was seen as an illustration of intra EMU tensions. In 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. The US side of the story has also been far from brilliant, but the dollar took advantage from its safe haven status. So global bad news most often was a negative for the euro, good news gave the single currency some downside protection. Over the previous weeks, the EUR/USD decline shifted into a lower gear but until now any attempt of the euro to regain ground ran rapidly into resistance. Recently, we indicated that a sustained change in the global negative sentiment is needed to give the euro better downside protection. The jury is still out, but last week’s price action on the stock markets showed some tentative signs that global markets have entered calmer waters supporting the single currency. If this pattern would be confirmed this week, the euro might continue its gradual correction of late.
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 dropped below the 1.2765/00 support area (previous low) and set a ST low in the 1.2457 area. However, a test of the key 1.2330 area didn’t occur. Last week, the pair regained the 1.2754 previous ST high and STMA and MTMA (averages) are again turning to the upside. This could be a first indication that the pair is receiving a better bid. 1.2991 is next short-term resistance. A break above this level would open the way to the top of the sideways range in the 1.3330 area.
On Friday, USD/JPY showed somewhat of an indecisive trading pattern. The pair popped up at the end of the Asian trading session on a constructive stock market sentiment. In the market there was also a lot of debate as to whether the action from the Swiss national bank could inspire Japanese authorities to take similar action (a view we do not share). However, later in the session USD/JPY entered calmer waters and closed the session at 97.95, little changed compared to the 97.72 close on Thursday.
This morning, there were no important eco data on the agenda. The Nikkei closed the session again with a decent gain of 1.78%. Later this week, market will look out for the BoJ policy meeting (Wednesday).
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 the 90.00 area. Since mid January, the pair even made a decent rebound that accelerated. The underlying yen-momentum obviously has weakened. The market questioned the safe haven status of the Japanese currency and grew more worried on the performance of the Japanese economy as faltering exports clouded the eco picture. Last month, we installed a buy-on-dips approach in this pair. The break above the key 94.65 resistance improved the ST picture further. Last week, the USD/JPY rebound lost momentum, opening the way for a corrective profit taking move. Next important resistance still comes in the 100.55/102.20 (04 Nov high)/2nd target double bottom off 94.65). We turned neutral on USD/JPY as we have the impression that this resistance area will be tough to break in a first attempt. We hold on to a range trading strategy between 94.65 (neckline double bottom) and 100.55/102.20.
On Friday, sterling received a better bid, both against the euro and the dollar. So, the sterling correction after the BOE implementation of new measures of quantitative easing two weeks ago apparently has run its course. Cable rebounded above the 1.40 mark and in the same move EUR/GBP temporary dropped below the 0.92 barrier. However, the UK currency was not really able to build out its gains and the pair closed the session at 0.9240, compared to 0.9262. So, sterling gains are not really that spectacular yet.
This morning, the Rightmove house prices showed a marginal improvement 0.9% M/M/-9.0 Y/Y. EUR/GBP drifted lower at the start of trading in Asia this morning, but this move was probably due to a (temporary) decline in the euro rather than a reaction to these house prices. Later today, the UK calendar is empty.
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 remained sterling cautious as we consider the BOE approach a potential risk factor for sterling. This was also visible over the previous 10 days. The BoE taking ever more aggressive steps in its quantitative easing policy and the growing government involvement in the financial sector received again more market attention and had a negative impact on sterling. The break above the 0.9083/72 neckline made the MT technical picture for EUR/GBP again positive. In a day-to-day perspective, have the impression that the EUR/GBP rebound might shift into a lower gear. Nevertheless, we maintain our buy-on-dips approach. The 0.9519 reaction high is the next high profile resistance on the charts. Sustained return action below the 0.9085 support (previous high) would be an indication that the sterling negative market attitude is waning.
