Euro Outlook
The euro rose yesterday after the german and france business confidence data showed a surprise improvement.. also mr.trichet stated that e.u. interest rates are at the right level, dismissing doubts about an ecb rate cut soon.. the euro climbed to a high of 1.5855, before retreating on profit-taking to 1.5775 this morning.. we believe that the euro has begun a new wave of uptrend from its last week’s low of 1.5340.. if this new rally extends directly to at least 1.5905, or a bit higher to 1.5950 / 95, then we may witness an exhaustion at a certain level, followed by a broad correction that may drive the euro down to the 1.5000 level and lower.. however, if a major retracement occurs prematurely before the 1.5905 top, to approximately 1.5550 area, then we will expect a new buying-interest to emerge increasingly bullish and implying a very wide extension to the upside, calling for levels of 1.7000 / 1.8000 in the following months.. this is the technical verdict for the time-being; so, wait and see.. today, we expect the correction to extend to 1.5660 / 40 and possibly a revival of an upside momentum there; but the short-term picture is not very clear, as we can begin an important correction here to 1.5550 / 40, which will call for the above very euro-bullish scenario afterwards, only if the central banks allow it..
Morning forex report
The USD tumbled sharply on Wed. as the ECB’s Trichet basically said ‘Non’ to the idea of rate cuts, stressing that growth was holding up in the Eurozone (German IFO ticked higher on the day, just to underscore this point…) and that inflation risk was still too high. Given that the ECB is expecting inflation to remain above their target rate all year long, it does seem that something extraordinary will be needed to turn their heads on this. The US durable goods data, by contrast, fell sharply again, not the best of backdrops for USD recovery plays. This leaves the USD looking beaten up again with the downtrend still holding a tight grip on the reins. The risk has to be on $1.59 giving way in the EUR/USD for $1.60, then $1.70 here we go as the EUR staircase is now 10 cents at a time. The best thing going for the USD is that it is already trading at bargain basement levels – and while bad news should be able to knock it through key levels, and many pundits are writing about the USD as if it is in free fall, this seems more like a USD buyers ’strike’ than a free fall. What would make the USD find friends? Thoughts of a base in rates, better than expected data on any front, and maybe some wobbles in the Eurozone data. On the charts, the EUR/USD upside risk is well known, use a push below 1.5730/1.5660 as reason to aim for 1.5450/1.5340 again. The latter is now key potential double top midpoint support, relevant only if 1.59 holds off upticks! Cable above 2.00 could see 2.04 again, chances are that 2.0160/2.0220 fends off upticks, EUR/GBP risk is for 0.79 to give way for 0.80 after all, still not favored but the risk is there once again so… In the yen, risk aversion waxes and wanes, trend wise losing 99 would be negative for the USD for 98.60/97.50, not favored but.
Evening forex report
The German IFO surprised on the upside (again) with the 104.8 reading surpassing the 103.5 expected figure. Trichet was on the wires, pretty much saying that rates are ok where they are, rate cuts are not on the agenda, the EUR surged by a big figure+. This leaves 1.56 as support now, 1.59 back in play for 1.60 and then to 1.70/1.80. True, Trichet did say that he didn’t want excess FX volatility, hmmm… The Yen firmed as well which is leaving 99 in the sights, down to 97 for 95.70 again? Hmmm… EUR/GBP surged which left Cable backing away from the 2.00 break, the cross back to 0.7880 pressure for 0.79, then to 0.80 if the market takes the ‘everything is ok in the Eurozone’ mantra to heart. Again, this seems a bit of a stretch, but so far, the data is holding up. If the US durable goods figure disappoints later today, watch for the USD to really get taken to the cleaners.
Euro Outlook
The dollar dropped yesterday after a fall in the u.s. consumer confidence revived the toughness of the housing and credit crisis.. investors remain nervous about the u.s. economy which is probably in a recession.. consequently, the euro climbed and retested a high of 1.5655, before retreating on profit-taking.. technically, the euro’s decline from its all-time high of 1.5905 to 1.5340 last week is considered as enough correction (for us); and we think that the rally seen since then is the resumption of the upmove that should drive the euro to at least a revisit of 1.5905 top, most probably higher, approaching the 1.6000 level.. however, some analysts still expect the euro’s correction from 1.5905 to extend lower to 1.5255, or even lower to 1.5170, before a new rally unfolds.. we believe that we are right and the first signal that would confirm our view in the next hours is the euro surmounting the 1.5690 fibonacci retracement level (61.9% of the last fall) on an hourly closing basis.. otherwise, a distinct fall below 1.5450 will signal a new decline and announce 1.5170, possibly lower 1.5145/1.5100.. for today, we expect the euro’s fall from yesterday’s top to exhaust around 1.5560/25 and a new buying-interest to emerge towards 1.5730 then 1.5770, on its way to 1.5905 in the coming sessions..
Morning forex report
The USD marked time in o/n trading, with the EUR/USD retreating from the $1.5650 area, yen remaining relatively soft though. GBP remains bubbly, not a huge vote of confidence in UK banks or the BoE etc., but this looks like EUR/GBP traders are balking at pushing to 0.80 just yet, hedgers and range trading fans will be looking for 0.7750 pressure for 0.7700 in the near term, potential back to 0.74 seen after this – if the trend breakout is actually reversing. In the EUR/USD the pressure on $1.56+ opens up $1.59 and higher risk, but still leaning to limited upticks, then down to tackle $1.53 for $1.5140/1.4950 and lower. The CHF is still looking as if it can back up, with the EURX building above 1.57, see if 1.58 can start to be eroded for 1.59 and higher. True, this depends on risk aversion continuing to abate, tough to see when money market rates continue to edge higher despite CB’s pumping money into the system. Again, this is not a money issue, banks don’t want to lend money as they are trying to build up their balance sheets and don’t know who has a black hole in their books (fair enough really…). Back to the UK, and news that the FSA will be beefing up their scrutiny of banks etc. is a classic barn doors and horses exercise, the main problem with NRK was that their business model (borrow expensive, lend even higher) worked until it didn’t, at which stage does a regulator tell a private company ‘hey, your business model has risks….’ and what can they do about it? Hmm… Plenty of data on offer today, see if the IFO surprises on the upside again while the US durable goods figure will be interesting to watch for growth clues. New home sales? Stability would be good, if seen…
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