On Monday, a lot of markets were still closed for a prolonged Easter holiday weekend. The US stock markets were open, but their performance was not really impressive. However, after the strong gains at the end of last week, this should still be considered as signal of positive investor sentiment. Global investor sentiment is still the main driver for currency markets and yesterday, the non-safe haven currencies like the euro, but even more the Aussie and the Kiwi dollar took a strong start of the new trading week. Especially during the US trading hours, the euro performed quite an impressive rebound and closed the session at 1.3368, compared to a 1.3168 close at the end of last week. However, both on Friday and on Monday, a lot of important markets were closed. So, one shouldn’t draw any firm conclusions for the price action over the previous two trading sessions.
This morning, the Asian stock markets show somewhat of a mixed performance and this caps the rebound of the euro, both against the dollar and the yen.
Today, the European calendar is very thin. In the US, the eco agenda is better filled with the producer prices, retail sales and business inventories scheduled for release. Especially the retail sales and, to a lesser extent the business inventories, have market moving potential. Markets will look out whether there are any signs of bottoming out in the US retail sales (last month’s figures weren’t that bad). Inventory management will be an important factor for any improvement in production going forward. However, the interpretation of inventory statistics isn’t always that straightforward. Of course, going into the earnings season, the stock markets will again be closely monitored in all other markets. Recently, investors mostly looked at the corporate and macro headlines from a positive side. However, this morning, the positive results from Goldman Sachs published after the close of the US markets, failed to inspire the markets. Ongoing uncertainty and rumours that the US government is taking steps to prepare for GM bankruptcy filing continue to be a factor of overall investor uncertainty. From a currency point of view, it looks as if the non-safe haven currencies including the euro might shift into a lower gear after yesterday’s rather strong rebound. A speech from US president Obama on the US economy later today is a wildcard for trading on all markets.
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. So, despite some temporary spikes of volatility, since the last week of March, EUR/USD basically kept a sideways trading pattern.
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 and profit taking kicked in. Two weeks ago, 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. We hold on to that tactics. Even as we have a LT euro positive bias, we have to admit that the euro performance recently wasn’t really impressive, for example compared to other pointers of risk appetite like the Aussie dollar. In this respect, ST gains above the 1.3581 reaction high might be difficult.
Since the end of last week, USD/JPY also didn’t show any clear trend. The pair held in a sideways trading pattern close to the 100-mark. Contrary to some other major cross rates, the impact of the stock markets on the cross rate is not really that clear. The pair yesterday declined/stabilized while US stock markets recouped the earlier losses. Technical considerations (inability to take out the recent highs) might have played a role. The currency pair closed the session at 1001.10, little changed from the 110.24 close on Friday.
This morning, the Asian stock markets show a mixed picture. There were no important eco data in Japan this morning. A 30-year bond auction went rather well.
The central bank of Singapore shifted the centre of its trade-weighted band, a move that de facto implies a devaluation from its previous level. The SGD gained ground against the dollar after the decision. Markets apparently were positioned for a bigger adjustment.
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, last week we advocated that additional/stained 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. We hold on to this view.
At the end of last week and on Monday, EUR/GBP has been traded in rather narrow range close to the 0.90 mark. So, sterling managed to maintain the gains from the second half of March rather well.
Today, the UK calendar is empty A press article reports that UK Chancellor of the Exchequer is set forecast that British economy will end its fall in the last quarter of the year.
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.
