On Friday, there were no important eco data on the calendar in Europe or in the US. However, this didn’t prevent some wild swings in the EUR/USD cross rate. Several intermediate support levels were broken and finally the key 1.2163 low was broken. So, EUR/USD (and several other euro cross rates) set new multi-year lows.
EUR/USD changed hands in the mid 1.22 area at the start of trading in Europe. The pair had lost some ground overnight as sentiment on risk deteriorated in Asia. At first, European equities didn’t do that bad and EUR/USD even tried a cautious attempt higher. However, the pair was unable to regain the overnight top. European equities did run into resistance, too.
What can’t go up, must come down. So, EUR/USD turned south. During the day the decline was reinforced by a new series of negative headlines from the euro area. First, there were vague headlines/rumours that the German CSU would object any attempt by Greece to renegotiate the conditions of its bailout or even that the party would support a scenario for Greece to leave the EMU. While only rumours, it didn’t help the single currency. Around noon, the single currency was hit by a series of negative headlines from Spain. The region of Valencia said that it would apply for financial help from the Central government and Spain also revised downward its growth forecasts for 2013 from 0.2% Y/Y to a contraction of 0.5% Y/Y. EUR/USD dropped below several key support levels. Around the same time, the Ministers from the Eurogroup had issued a communiqué on the bailout of the Spanish banking sector.
However, the report didn’t contain new information and was unable the contain the bleeding for the single currency. On the contrary, after the open of the US equity markets, European stocks faced another selling wave. EUR/USD set now lows for 2012. Later in the session, the sell-off halted, but EUR/USD never gave the impression that it would be able to succeed any rebound worth mentioning. EUR/USD closed the session at 1.2157, compared with 1.2281 on Thursday. CFTC data indicated that investors raised speculative positions against the euro and held more dollar long positions. The market is clearly positioned short euro, but at least of now this doesn’t help the single currency.
During the weekend, the negative news flow on the EMU debt crisis continued unabatedly. An official from the region of Murcia indicated that his region will also ask financial support at the central government and there is a lot speculation that several other regions will go the same way. Greece is also returning to forefront of the financial headlines. The Troika will return to the country tomorrow. It is quite obvious that the country is off track to meet the targets of the current plan. Recently, several German officials indicated that Greece wouldn’t get any additional aid if the requirements of the aid package are not met. Even more, there are press articles that the IMF is moving to a similar conclusion. So, the tensions in Spain and Grexit will again be the key factors for trading at the start of this new trading week. EUR/USD is changing hands in the low 1.21 area this morning.
Later today, the calendar of eco data is almost empty, both in Europe and in the US. However, Friday’s price action proved that this doesn’t mean that markets don’t move. There will be enough analysis and headlines on Spain and Greece to inspired trading. This analysis clearly won’t contain much good news from the EUR/USD or for risky assets in Europe. Early last week, EUR/USD failed profit from a risk-on sentiment on global markets. With the news flow on Europe turning again negative and with the technicals given another red alert, the risks for EUR/USD are again clearly to the downside. Holiday-thinned market conditions are no help, on the contrary. In an FT article Fed’s Williams suggests that the Fed might move to some kind of open-ended QE. In theory this should be negative for the dollar, but we doubt that this kind of headlines will be of much importance for EUR/USD trading today.
Technicals and view. EUR/USD touched a new 2012 low at 1.2288 on June 1 as uncertainty on the EMU debt crisis weighed. From there, a technical rebound started and this correction was extended further out in June. However, the next high profile level on the charts 1.2824 (21 May top) stayed out of reach.
EUR/USD reached a lower top at 1.2693 after the EU summit, but a test of the range top again didn’t occur. A new down-leg finally pushed the pair beyond the 1.2288 rang bottom. Last week, the EUR/USD sell-off enjoyed a temporary breather. However, the rebound was very unconvincing and EUR/USD didn’t succeed to take out any important resistance. On Friday, selling restarted and EUR/USD reached a new low for the year. The break below the 1.2288 support is now clearly confirmed and this opens the way for a return to the 1.1877 level (2010 low + low of EUR/USD since the start of the debt crisis).
On Friday, there was not that much to tell on USD/JPY trading, as the trend of the previous days was extended. Sentiment on risk was again negative. Core bond yields were under downward pressure and this continued to weigh on the USD/JPY. However, given the decline on the European equity markets and in EUR/USD, the losses of USD/JPY were very moderate.
This morning, the USD/JPY cross rate is captured in another down-leg. The negative headlines on Europe continue to spook the market and for Japanese investors, lower USD bond yields and the prospect of more QE in the US are no incentive to buy the dollar. So, for a lot investors the yen remains the by default safe haven currency. Japanese Fin Min Azumi repeated the usual mantra that Japanese authorities are ready to take decisive action against speculative and excessive rises in the safe haven yen. However, markets are clearly not convinced that there is that much that Japan can do to break the current rise of the yen. Japanese policy makers will step up their verbal interventions, but this is not enough a reason to row against the tide.
On Friday, trading in the EUR/GBP cross rate developed according the script of the previous days. There were few economic data. The UK budget deficit was bigger than expected, but as was most often the case of late largely ignored by traders. So trading was mostly driven by global sentiment on risk. Over the previous days sterling profited more from the positive sentiment on the equity markets than the euro. On Friday, sentiment was more risk-off, but this didn’t change the balance between the euro and sterling. Cable resisted the decline of risky assets much better than EUR/USD. In addition, early in the afternoon, EUR/GBP lost further ground on headlines that Valencia was seeking support from the central government. EUR/GBP set a yet another correction low in the 0.7773 area. Later in the session, the decline of the euro slowed, but EUR/GBP held near the recent lows.
Today, there are no important eco data releases in the UK and the EMU consumer confidence is usually also no market mover. The market headlines this morning are clearly euro negative. Sterling has already succeeded a very powerful rally against the euro since end June. The pair is oversold and one might assume that the market is already positioned EUR/GBP short. However, for now, there are no good reason to row against the tide.
From a technical point of view, the EUR/GBP cross rate was captured in a consolidation pattern following a longstanding sell-off that started in February and ended Mid-May when the pair set a correction low at 0.7950. From there, a rebound/short squeeze kicked in. However, the move had no strong legs and finally, EUR/GBP dropped below the 0.7950 range bottom. This break opened the way to the next high profile support, in the 0.77 area (Oct 2010 lows). Last week, the decline slowed a bit, but the trend remained clearly intact. The pair is on track to reach the 0.77 target area sooner rather than later.