Euro again higher against the dollar
March 27, 2008
Wed, Mar 26 2008, 08:57 GMT
by KBC Market Research Desk
Yesterday, EUR/USD rebounded strongly, following the steep correction that took place before Easter. The rebound was initiated yesterday morning in Asian trade and seemed to have been technical in nature. The euro built out its gains later on, helped by very weak US consumer confidence and plunging US house prices. The stronger Richmond Fed survey was largely ignored. The pair started the day at around 1.5420 and closed at 1.5650. Currently the pair is subject to some selling and trades around 1.56, whereas oil and gold, important drivers of the dollar are little changed.
Today, the calendar is well filled with market moving data, both in the US and in Europe. In EMU, the business confidence data in Germany, France, Italy and Belgium will give an up-to-date view on the economy. The PMI survey was weaker in March, suggesting that all in all the national data should be weak too. However, the German PMI actually improved, but we would nevertheless stick to the decline expected (103.5) as in February the IFO index rose on the back of a suspected steep improvement of retail. In US, durable orders and New Home sales should be weak. So overall, the data might not give enough contrast to affect the EUR/USD pair substantial. The testimony of ECB president Trichet before parliament might be more interesting. Trichet is between a rock and a hard place. Indeed, given inflation concerns he cannot soften his stance on interest rates, keeping the interest rate differential in favour of the euro. On the other hand, the euro strength (against the dollar) is making the ECB nervous and under political pressure. So, he might again warn that excess volatility is unwarranted, leaving markets guessing whether at some point interventions will take place. We still think it is too early for that as they would be out of line with fundamentals and thus giving market participants only the opportunity to buy the euro at cheaper levels. However, currency remarks of Trichet might make traders reluctant to buy euros
We had and still have a long-term negative view on the dollar, as we expect the fall-out of the credit- and housing crisis will continue to affect the US economy in the quarters to come. We were looking for a correction and got this last week. The consolidation might be prolonged and we would be inclined to buy into euro weakness. We suspect levels below 1.54 would be sustainable for long. On the other hand, also the highs at around 1.59 will be tough to break through.
Looking at the graphs, the EUR/USD picture was euro constructive since the break above 1.4968/1.50. The correction drove the pair as low as 1.5341 in Monday’s thin trading. A drop below, which we don’t expect, would put the euro bullish picture into question, but the rebound above the medium term moving average (MTMA) at 1.5543 today is encouraging for the euro bulls and the first key support level.
The USD/JPY rebound seems to be running out of steam. The pre-Easter dollar correction brought the USD/JPY pair to a 101.04 high yesterday from a panic low of 95.78 one week earlier. Currently, the pair trades around 100.15, little changed from yesterday’s close.
Stronger equities in previous days were of course the main factor against the rebound in USD/JPY, but equities are trading more mixed today with the Nikkei down 0.3%. The Japanese trade surplus was considerably lower than expected, as a big rise in imports overwhelmed a small rise in exports. The USD/JPY pair shrugged off the overnight news and hovers in a tight range around 100. In other Asian markets, the yuan strengthened more than expected reaching a new high of USD/CNY of 7.028
Also for USD/JPY, we got the dollar rebound we were looking at. The rebound extended to the obvious resistance that is at 101.40 (previous low) and while the equity outlook is a bit of a wild card, we would cautiously start to buy the yen.
Looking at the graphs, the longer term picture for USD/JPY is still very much downwardly oriented and the sustained break below the 1999 low only confirms this LT picture.
EUR/GBP joined the overall euro rebound yesterday and moved from 0.7768 towards 0.7802 in the close after reaching an intra-day high at 0.7827. The rebound occurred in Asian trading hours and was driven by a rebound in the EUR/USD pair. Later on, trading was sideways oriented and technical in nature.
Today, the EMU calendar is interesting as it contains the business services, but also a testimony of ECB president Trichet that may affect the euro. However, in the UK, BoE president King and some colleagues appear before the Treasury Committee on the inflation report. We cannot imagine that King might give Sterling supportive remarks. While he may refrain from giving comments on interest rates, if he says something it should be dovish and thus sterling negative. If he would say something about financial markets, it will remind markets that the UK markets and the city are well in problems, something also negative for Sterling.
In this respect, we suspect that the sterling correction of last week that ran out of steam and partially reversed yesterday is over. So we are looking for EUR/GBP to be well supported and eventually re-tests the highs. So, we hold on to our long-term negative view for sterling. The risks for EUR/GBP clearly are to the upside.
On the graphs, EUR/GBP traded very volatile last week, but the rally ultimately ran out of steam and profit taking occurred, driving EUR/GBP from the 0.7911 high towards the 0.7746 low before a modest rebound occurred yesterday. The pair not even approached the obvious 0.7695- support area, which shows the underlying weakness of sterling.
by KBC Market Research Desk
Yesterday, EUR/USD rebounded strongly, following the steep correction that took place before Easter. The rebound was initiated yesterday morning in Asian trade and seemed to have been technical in nature. The euro built out its gains later on, helped by very weak US consumer confidence and plunging US house prices. The stronger Richmond Fed survey was largely ignored. The pair started the day at around 1.5420 and closed at 1.5650. Currently the pair is subject to some selling and trades around 1.56, whereas oil and gold, important drivers of the dollar are little changed.
Today, the calendar is well filled with market moving data, both in the US and in Europe. In EMU, the business confidence data in Germany, France, Italy and Belgium will give an up-to-date view on the economy. The PMI survey was weaker in March, suggesting that all in all the national data should be weak too. However, the German PMI actually improved, but we would nevertheless stick to the decline expected (103.5) as in February the IFO index rose on the back of a suspected steep improvement of retail. In US, durable orders and New Home sales should be weak. So overall, the data might not give enough contrast to affect the EUR/USD pair substantial. The testimony of ECB president Trichet before parliament might be more interesting. Trichet is between a rock and a hard place. Indeed, given inflation concerns he cannot soften his stance on interest rates, keeping the interest rate differential in favour of the euro. On the other hand, the euro strength (against the dollar) is making the ECB nervous and under political pressure. So, he might again warn that excess volatility is unwarranted, leaving markets guessing whether at some point interventions will take place. We still think it is too early for that as they would be out of line with fundamentals and thus giving market participants only the opportunity to buy the euro at cheaper levels. However, currency remarks of Trichet might make traders reluctant to buy euros
We had and still have a long-term negative view on the dollar, as we expect the fall-out of the credit- and housing crisis will continue to affect the US economy in the quarters to come. We were looking for a correction and got this last week. The consolidation might be prolonged and we would be inclined to buy into euro weakness. We suspect levels below 1.54 would be sustainable for long. On the other hand, also the highs at around 1.59 will be tough to break through.
Looking at the graphs, the EUR/USD picture was euro constructive since the break above 1.4968/1.50. The correction drove the pair as low as 1.5341 in Monday’s thin trading. A drop below, which we don’t expect, would put the euro bullish picture into question, but the rebound above the medium term moving average (MTMA) at 1.5543 today is encouraging for the euro bulls and the first key support level.
The USD/JPY rebound seems to be running out of steam. The pre-Easter dollar correction brought the USD/JPY pair to a 101.04 high yesterday from a panic low of 95.78 one week earlier. Currently, the pair trades around 100.15, little changed from yesterday’s close.
Stronger equities in previous days were of course the main factor against the rebound in USD/JPY, but equities are trading more mixed today with the Nikkei down 0.3%. The Japanese trade surplus was considerably lower than expected, as a big rise in imports overwhelmed a small rise in exports. The USD/JPY pair shrugged off the overnight news and hovers in a tight range around 100. In other Asian markets, the yuan strengthened more than expected reaching a new high of USD/CNY of 7.028
Also for USD/JPY, we got the dollar rebound we were looking at. The rebound extended to the obvious resistance that is at 101.40 (previous low) and while the equity outlook is a bit of a wild card, we would cautiously start to buy the yen.
Looking at the graphs, the longer term picture for USD/JPY is still very much downwardly oriented and the sustained break below the 1999 low only confirms this LT picture.
EUR/GBP joined the overall euro rebound yesterday and moved from 0.7768 towards 0.7802 in the close after reaching an intra-day high at 0.7827. The rebound occurred in Asian trading hours and was driven by a rebound in the EUR/USD pair. Later on, trading was sideways oriented and technical in nature.
Today, the EMU calendar is interesting as it contains the business services, but also a testimony of ECB president Trichet that may affect the euro. However, in the UK, BoE president King and some colleagues appear before the Treasury Committee on the inflation report. We cannot imagine that King might give Sterling supportive remarks. While he may refrain from giving comments on interest rates, if he says something it should be dovish and thus sterling negative. If he would say something about financial markets, it will remind markets that the UK markets and the city are well in problems, something also negative for Sterling.
In this respect, we suspect that the sterling correction of last week that ran out of steam and partially reversed yesterday is over. So we are looking for EUR/GBP to be well supported and eventually re-tests the highs. So, we hold on to our long-term negative view for sterling. The risks for EUR/GBP clearly are to the upside.
On the graphs, EUR/GBP traded very volatile last week, but the rally ultimately ran out of steam and profit taking occurred, driving EUR/GBP from the 0.7911 high towards the 0.7746 low before a modest rebound occurred yesterday. The pair not even approached the obvious 0.7695- support area, which shows the underlying weakness of sterling.
Labels: Markets, Technical Analysis
