On Wednesday; it was an interesting day on global markets, with investors enjoying quite a lot of good news. However, this dynamic was again not visible in the EUR/USD price action. The currency pair was still more or less paralyzed by conflicting signals. On Greece, there was not really any fresh news, but widening credit spreads on Greek government bond were another illustration that last weekend’s ‘detailed’ rescue package for Greece was not really able to remove investor uncertainty on this issue. Especially the political process of an approval of a Greece drawing on the EU/IMF support facially remains a big point of uncertainty. On the top of that, the EU yesterday indicated that also Portugal might need to take additional steps to reduce the budget deficit. The focus on intra-EMU problems caused the euro to cede ground before noon in Europe. However, the tide turned once the US joined the price action. From there, a batch of good news flooded the markets. The results of JP Morgan came out better than expected and the US March retail sales were very strong. However, from a currency point of view this positive news still had two sides. Should one trade the cyclical recovery in the US or should one buy the euro on rising risk appetite? Once again, EUR/USD traders didn’t really know which way to go. On top of that, US (core) inflation came out lower than expected and Bernanke didn’t give any signal that the Fed will change its loose monetary policy anytime soon. This Fed commitment and equities going through the roof finally triggered some EUR/USD gains. EUR/USD tested offers in the 1.3675/80 area. However, a real, test of Monday’s reaction high (1.3692) didn’t occur. So, the move stalled. EUR/USD closed the session at 1.3653, not that much different from the 1.3614 close on Tuesday evening.
Overnight, the EUR/USD cross rate was little changed. Asian stocks are mostly higher, supported by strong Q1 growth in China. However, at least for now there is no indication that the recent stalemate in EUR/USD trading might be unlocked anytime soon.
Today, the US eco calendar is again very well filled, with the jobless claims, the Empire manufacturing survey and the Philly Fed survey, the US industrial production data and the TIC data. The data are of course interesting. However, as was the case yesterday, it is highly doubtful that they will be able to provide a clear guide for EUR/USD trading. On top of that, one still can not but mention the pending uncertainty on the next steps in the Greek soap. Quite a lot of this uncertainty is discounted at the current EUR/USD levels. Nevertheless, it is still difficult to see this story yielding any positive news for the single currency. So, even as the global context remains constructive for riskier assets, the upside in this pair looks limited. One can raise the question what will happen when the global context at one point would turn less positive on risky assets.
Looking at the technical charts, the EUR/USD currency pair is still trying to build a ST double bottom formation with neckline at 1.3592. For now, the ‘break’ above this level was not able to reinforce the ST positive momentum in this pair. This is a disappointing for EUR/USD bulls. The targets of this ST double bottom formation come in at 1.3902/17. In a broader perspective, the EUR/USD currency pair is now enfolding some kind of a consolidation pattern between 1.3268 (reaction low) and 1.3819/50 (previous reaction high/MT breakdown). Within this pattern, we still prefer a sell-on upticks approach in case of return action higher in the range. We still assume that a sustained rebound beyond the 1.3850/1.3900 area will be (very) difficult. Long term, we stick to our cyclical USD positive call, too.
As was the case for several other major cross rates, there was also no clear story to drive the price action in the USD/JPY cross rate. During the morning session in Europe and early in the US, the pair was underpinned by good European and US eco data and by a strong stock market performance. The pair reached intraday highs in the 93.70 area. However, also in this cross rate a first minor resistance (93.78 reaction high) was a too high hurdle to overcome. On top of that, the soft comments from Fed Chairman Bernanke were no big help for the dollar either. So, despite the strong equity performance, the USD/JPY rebound stalled and the pair even had to return the earlier gains. USD/JPY closed the session at 93.23 unchanged from the 93.20 close on Tuesday (and the 93.24 close on Monday). So, despite quite some interesting developments on global (equity) markets and mounting evidence that the world economic recovery is gaining strength, this is not a good reason enough to stir some price moves in the USD/JPY cross rate for now.
Overnight, the situation hardly changed. In Japan, there were only some second tier eco data on the agenda. Japanese equities (and most other Asian stock markets except for China) show moderate gains, but this still fails to inspire any price action in USD/JPY. Investors anticipating on monetary tightening and currency strength in other Asian countries (cf Singapore or China) might limit the downside in the yen too, even as the monetary context in Japan is completely different.
Recently, the performance of the USD against the yen was not really convincing. So, we kept a wait-and-see bias. We have a LT USD/JPY positive bias, but we advocated waiting for a sign that the recent correction has run its course. On Tuesday, the pair showed some tentative signs of a bottoming out pattern. Since then the pair is a few ticks higher. So, the jury is still out whether this was the turning point. Nevertheless, the ongoing deflation talks remain an important yen negative factor. The stock market reaction to the earnings will be an important factor for USD/JPY trading going forward. If the pair would regain the 93.80 area in a sustainable way, this would be a first positive signal. The picture is still fragile, but we hold on to our view that a cautious buy-on-dips approach might still be considered.
On Wednesday, the EUR/GBP currency pair turned south again. Especially during the European morning session, the euro was again fighting an uphill battle with headlines on Greece (and to a less extent on Portugal) the most obvious drivers for euro caution. Technical consideration played a role too. The inability to regain the 0.8860 resistance area (Tuesday high) was a disappointing signal for EUR/GBP bulls, too. Later in the session, the correction stalled. In the current environment, it is also difficult to see whether global investor appetite for risk should support the euro rather than sterling. EUR/GBP closed the session at 0.8827, compared to 0.8851.
Overnight, Nationwide consumer confidence came out well below market expectations. However, at least for now this has no negative impact on sterling. On the contrary, the slide in EUR/GBP continues. A poll that the Conservatives might secure a victory in the early May elections is supporting the UK currency.
Today, the UK calendar is again empty.
Recently/last week we were a bit surprised by the recent sterling strength, even as it was at least partially euro weakness rather than sterling strength. However, after the correction earlier this week, it looked as if the sterling rebound had run its course. To be honest, the subsequent EUR/GBP rebound is not really convincing either. Nevertheless, we still assume that more sustained sterling gains beyond the recent EUR/GBP lows are not that easy. Several strong support levels are lining up in the EUR/GBP cross rate: 0.8705 (reaction low), 0.8660 area and 0.8602 reaction low. We expect this area to be difficult to break. So, we are not in a hurry, but a cautious buy-on-dips approach in case of return action toward the 0.8700 area is still favoured. A sustained break below the 0.8603 MT low would signal a change in sterling sentiment for the better. However, for that to happen the risk of a hung Parliament needs to be out of the way.
