EUR/USD comes closer to key resistance
February 25, 2008 – 10:20 amEUR/USD showed some intraday swings on Friday, but in retrospect the pair basically traded sideways. EUR/USD started European trading in the 1.48 area, but was propelled higher as the European PMI data came out on the stronger side of expectations. The combination of poor US data recently and those better than expected European data was seen as another indication that the ECB won’t be in a hurry to take action anytime soon, maintaining the euro favourable interest rate differential. To be honest, the European data on Friday weren’t unequivocally positive as the French data (consumer spending and Business confidence) and the EU industrial orders came in well below expectations. The euro fell prey to some profit taking later in US trading, but still closed the day at 1.4828, slightly higher compared to the 1.4814 close on Thursday.
Today, the Eco calendar is thin, both in the US and Europe with only the US existing home sales and some central bankers’ speeches on the agenda. Last Friday, there were some news headlines that a solution on monoline insurer Ambac might be in the making and that might be important for stock markets, and thus indirectly also for other markets. In the recent past, a positive stock market sentiment was moderately euro supportive. Later this week, the calendar is very will filled both in the US and the EMU with among others, the German IFO on Tuesday and the semi-annual testimony from Mr. Bernanke on Wednesday.
For now, we expect the data to more or less confirm the picture of a poor US eco performance and a deteriorating, but still acceptable European economy reinforcing the view that the ECB will lag (far) behind the Fed in reducing euro interest rate support So, this at least should keep the euro downside reasonably well supported. However, EUR/USD gradually comes closer to the key 1.4968/1.50 resistance area that already proved a hard nut to crack on three attempts previously. So, while we maintain a euro positive bias longer term, the way up for EUR/USD probably will become more difficult from now on.
Looking at the graphs, EUR/USD dropped sharply two weeks ago, but convincingly returned higher in the 1.4310/1.4968 trading range. In a longer term perspective, the EUR/USD picture remains euro constructive, as long as the medium-term low in the 1.43-area holds while short-term the correction low at 1.4440 gives intermediate support. Recently, we had a buy EUR/USD on dips approach for return action higher in the range, even if a test/break of the range top (1.4968) will be difficult, too. So, even if the EUR/USD momentum is clearly positive, we turn more cautious as the 1.50 area comes closer. From a tactical point of view, partial profit taking/stop loss protection on existing EUR/USD exposure might be rewarding short-term in case of return towards that key resistance area.
USD/JPY continues to trade in a tight 107/108 range. On Friday, the pair at first drifted lower in Asia and in Europe on a poor stock market performance but returned above the 107-barrier on the late session rebound in the US and still trades in that area this morning.
There were no Japanese eco data this morning, but most Asian, and especially the Japanese stock markets this morning trade with a positive bias which might be a slightly supportive for USD/JPY. However, once again the impact on the yen is not really that spectacular.
USD/JPY continues to show no strong directional momentum. Already since the last week of January, USD/JPY moves higher from the 104.95 low. However, this move develops in a very gradual way. Last week and the week before, USD/JPY tested the top of the established sideways trading range (104.95/107.92) but that was unable to trigger a more pronounced directional move/correction in this pair. Our call for return action to the 109/110 area to reinstall USD/JPY shorts also looks difficult for now.
We have a standing yen positive bias as we expect global economic and market uncertainty to remain a factor of importance. However recently we changed to a more neutral stance short-term. We wait for a more clear (technical sign) before setting up now USD/JPY trades.
On Friday, EUR/GBP mostly tracked the intra-day EUR/USD intraday swings as no UK eco data were on the calendar. The EUR/USD rebound on the stronger than expected euro zone PMI caused EUR/GBP to set intraday high at around 0.7553, but the week highs in the 0.7580 area weren’t challenged, suggesting some consolidation after the recent up-move in this pair. EUR/GBP closed the day at 0.7539, compared to 0.7548 on Thursday.
Today, the UK calendar only contains the BBA loans for house Purchase, but this index most probably is no market mover.
Will the stronger than expected UK retail sales have a lasting impact on sterling trading? Short-term, it stopped the fall of the sterling, but it is not enough to change our long standing negative view on the UK economy and on sterling. However, both EUR/USD and EUR/GBP came closer to important resistance levels and in this respect there might be reason for some short-term euro caution.
Looking at the graphs, the previous downward correction in EUR/GBP halted ahead of the key 0.7389 support. An attempt to break the top of the sideways range failed early February, but succeeded last week. As a result, the picture is again upwardly oriented in this pair and the 0.7614 target comes ever closer. We have a long standing sterling negative bias and don’t see any reason to change that for now. However, a first test of the 0.7614 highs could cause some temporary consolidation. So short-term, players still can consider some partial profit taking.
