On Wednesday, the swings in investor risk aversion/risk appetite remained the most important guide for trading in the currency markets. This was even more the case as there were no important eco data on the agenda. After two days of profit taking on Monday and on Tuesday, investors again turned less negative and EUR/USD joined this move. The rebound, both on the stock markets and on the currency market, was a bit remarkable as it started in Europe. European markets often have difficulties to change course without guidance from the US. However, this time stock market sentiment already improved during the morning session in Europe, despite a poor close in the US. A similar pattern was seen in EUR/USD. The increase in the funds for the car scrapping subsidy in Germany was at least one factor behind the stock market rebound. The pair set an intraday low in the 1.3150 area at the start of trading in Europe, but gradually recouped the Asian losses. Also US equity markets were supported by some positive corporate news stories. So stocks and EUR/USD remains rather well bid. EUR/USD tested bids in the 1.33 area after the close of the European markets and closed the session at 1.3282, compared to 1.3272 on Tuesday. This is of course nothing spectacular, but it only illustrates the swings in market sentiment. On Monday evening it looked as if stocks and EUR/USD would be in for a rather sharp correction. 24 hours later, a few rather insignificant news headlines managed to calm the storm.
Today, the German industrial production data will be published. Recently, this kind of German data most often painted a very grim picture of Europe’s biggest economy. The ECB publishes its monthly report. In the US, the trade balance and the jobless claims are scheduled for release. Especially the claims might have some (intraday) significance for EUR/USD trading. However, watching the stock markets will again be the name of the game. Looking at the Asian stock markets, the market momentum will probably be EUR/USD supportive.
Global context. After the gradual euro correction since the start of the year, EUR/USD bottomed out mid February. The market focus on the intra-EU tensions eased the additional steps of the Fed towards quantitative easing during the March meeting and triggered an aggressive USD sell-off. This USD sell-off petered out rather soon, despite the discussion on the role of the USD as reserve currency developing ahead of the G20 meeting. During the month of March, global investor sentiment grew more optimistic. Combined with the ECB holding to a more cautious approach on quantitative easing, this (temporary) supported the euro against the dollar. However, investors’ assessment of the financial and economic situation is still subject to a lot of uncertainty and even less important news headlines are sometimes able to cause rather sharp swings in sentiment that filter through in almost all markets. This was obviously the case since the start of this week. In such a context of highly instable investor sentiment in almost all markets, one can not but keeping a close eye on the technical framework.
From a technical point of view, EUR/USD set a reaction high at 1.3738 mid March after the Fed meeting. However, the rebound failed to take out the 1.3798 previous high. Profit taking kicked in and the pair fell again in the previous sideways range. Last week, the correction bottomed out and EUR/USD again found a better bid, supported by the smaller than expected ECB rate cut, but also this move had no strong legs. Recently, we put forward a range trading strategy within the 1.3113/1.3738 trading range. At least for now, the 1.3113 support survived but we are well aware that the market situation remains fragile. On top of that, market liquidity conditions might become less favourable going into the Easter holidays. The might spark some erratic trading and widen the swings in a market that is already quite nervous.
On Wednesday, USD/JPY initially tracked the rebound on the (European) stock markets and rebound from the 99.60 area to the 100.20 area in US trading. However, later in the session, the pair could not hold on to its gains and closed the session at 99.76, compared to 100.42 on Tuesday.
This morning, the markets pondered the potential impact of a USD 154 bln stimulus package as announced by the Japanese government. There was also some positive eco news as the March machine orders unexpectedly rose 1.4% in February. The Nikkei recorded a gain of 3.74 %. Most other Asian stock markets are in positive territory, too. USD/JPY, tries to regain the 100-mark in this positive (stock) market reaction. However, at least for now, the losses of the yen are fairly limited.
Global context. Over the previous months, the market gradually came to question the safe haven status of the Japanese currency and grew more worried on the performance of the Japanese economy. This hurt the yen’s safe haven status and triggered a USD/JPY rebound with the pair setting a reaction high at 99.68. This rebound ran out of steam and the pair settled in a sideways trading pattern between 93.50 and 100. Recently, the downside in USD/JPY proved to be rather well protected and the overall positive investor sentiment brought the pair again to the top of the MT trading range. Nevertheless, over the previous days, we advocated that additional gains beyond 100.55 (04 Nov high) and 102.20 (2nd target double bottom) would be far less easy. We turned more cautious on USD/JPY short-term. Partial profit-taking/stop loss protection on USD/JPY longs might still be rewarding.
On Wednesday, EUR/GBP more or less tracked the price action in EUR/USD. So, the recent outperformance of sterling over the euro apparently had run its course. There were no important data to guide the price action. From a technical point of view, the 62% retracement level (86.38 to 94.95) was tested, but a break didn’t succeed. After all EUR/GBP trading experienced a rather calm trading session and the pair closed the session at 0.9024, compared to 0.9008 on Tuesday.
Today, the UK PPI data and the trade balance will be published. The trade balance data might have some limited impact (impact on from the decline of sterling?). Later, the BoE will announce its policy decision. However, with the official rate at 0.5% and after the big steps that were announced last month, we don’t expect any high profile news from this BoE meeting. Nevertheless, markets are keen to get some more info on the execution of the bond-buying plans of the Bank. If there is no communication on this item, this might cause some nervousness in the interest rate markets and maybe also in the currency market.
Global medium term context. At the start of 2009, EUR/GBP made a forceful correction after the steep sterling losses mid-December. The pair extensively tested the key support area (0.8663/37 area previous high) but the test was rejected. The break above the 0.9083/72 neckline made the technical picture for EUR/GBP again positive as it opened the way for return action to the key 0.9519 reaction high. As this resistance came closer, the EUR/GBP shifted into a lower gear and even gave up most of the recent gains. The break below the 0.9083/72 neckline is a short-term negative from a technical point of view. In a longer-term perspective, we hold on to our view that it is too early to expect a sustained rebound of sterling. However, with the ST technical picture turning less supportive, we are not in a hurry to (re-)install EUR/GBP long exposure. There are some tentative signs, but we first want some more convincing signals that the correction has run its course. 0.8637 is still the key support area.
