EUR/USD sets new closing high
March 28, 2008
Thu, Mar 27 2008, 09:03 GMT
by KBC Market Research Desk
KBC Bank
Yesterday, EUR/USD continued its rebound and rose from about 1.5650 at the open to about 1.5850 into the close. It was the highest close ever and the pair has now approached the (intra-day) all-time high (1.5904). The contrast between better-thanexpected business sentiment data from a number of EMU countries and very weak US durable orders was behind the price action. More in particular, the IFO release pushed the pair noticeable higher. ECB governor Trichet showed concern about the strength of the euro when talking in the EU parliament. He said that “Excessive volatility and disorderly movements in exchange rates are undesirable for economic growth.” On the other hand, he continued to talk hawkish on rates because on the inflation concerns, that were once more highlighted yesterday when crude jumped about 5 $/barrel to about 106 $/barrel. Markets shrugged these currency warnings of Trichet off, as they feel that the contrast in economic data (see IFO) and in monetary policy on both sides of the Atlantic makes it difficult for policymakers to intervene with lasting results. It might offer speculators better entry levels to push EUR/USD again higher. Of course, one shouldn’t completely dismiss the possibility of interventions that may hurt speculators quite hard and with the 1.60 barrier approaching again at least talk about interventions will surely flare up. Overnight, EUR/USD eased on profit taking and trades currently around 1.5780.
The South Korean pension fund said that it stopped buying Treasuries because of its exposure and because of the low yields and instead looks to higher-yielding European government debt. While it is a relatively small player in FX, its attitude might be typical for more Asian investors.
Today, the US eco calendar is thin with the second revision of Q4 GDP unlikely to affect markets as it is outdated and the weekly initial claims. A large number of Fed governors will speak and will get an audience, but as they don’t directly address the dollar, an eventual effect should come from their remarks on the economy or credit crisis. The EU eco calendar contains no real market movers either, but markets will be attentive for ECB comments on the currency, especially following the ECB nonpolicy meeting. ECB governors Mersch and Wellink, two hawks, are scheduled to speak.
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. However, the fast pace of the recovery since early this week surprised us. Given this fast pace of the recent up-move and the looming all-time high of 1.8904, we suspect that some correction/consolidation is needed. So very short term players may want to sell the pair into strength. On the other hand, the short term picture remains euro bullish as long as above 1.5597 (MTMA). An eventual deeper retracement toward the 1.54/1.5340 area gives good euro entry levels for medium term players.
Looking at the graphs, the EUR/USD picture was euro constructive since the break above 1.4968/1.50. The latest correction drove the pair as low as 1.5341 in Monday’s thin trading, where the pair staged a powerful rebound threatening again the all-time highs at 1.5904. We suspect some renewed correction/consolidation is needed before the 1.60 might come under test, where Central Bank resistance may still become more vocal.
The USD/JPY pre-Easter rebound indeed ran out of steam, as the yen booked yesterday some additional gains. The driver behind the yen gains was generalized dollar weakness after the EUR/USD pair surged higher following the stronger IFO business sentiment. Later in the US session, EUR/USD continued to climb higher but USD/JPY stabilized. This meant that EUR/JPY moved mostly higher. Equity weakness played no meaningful role. In a daily perspective USD/JPY declined from 99.99 at the open to 99.19 at the close. Overnight, the yen tried to move higher against the dollar with an intra-day low of 98.57, but the yen gains have evaporated since and the pair trades around yesterday’s closing levels.
The Japanese Finance Minister said that a stronger yen will benefit the Japanese economy in the medium to long term, but it didn’t make much impression on traders. BOJ member Suda, seen as a policy hawk, said that the bank had still its sights set on raising rates from the current 0.5%, as monetary conditions are already very accommodative. However, he hedged his comment by adding that “what’s important is to share with markets the view that when negative economic signs become evident, the central bank will act quite decisively. So, concluding, Suda, the hawk, tried to warn markets that they shouldn’t count on a rate cut anytime soon. None of these comments affected yen trading in a sustainable way.
So also for USD/JPY, we got the pre-Easter dollar rebound we were looking at. The rebound extended to the obvious resistance that is at 101.40 (previous low), but it held and USD/JPY slid lower again. However, while EUR/USD is again at the highs, USD/JPY is still more than 2 yens from the lows. This might give the yen some leeway to outperform the euro against the dollar. We remain optimistic on the yen as long as the USD/JPY pair remains below 101.40 for a re-test of the cycle lows at 95.77.
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 went higher again and is approaching the highs. Generalized euro strength was a driver and the stronger IFO business sentiment was the trigger for euro strength. However, additionally, comments of BoE governor King were sterling negative. Indeed, King suggested that rates will be lowered further, even if it is not in the (aggressive) way the Fed is doing it. Listening to his speech, it is clear that he is very concerned with the credit crisis and is considering far-reaching measures to help the financial sector. This once more made clear that the UK, and the City, is one of the most hit by the crisis, a sterling negative factor. So, EUR/GBP moved from about 0.78 to 0.7890. Overnight, profit taking in euro also affected the EUR/GBP cross that trades marginally lower at 0.7871.
Today, the EMU calendar is thin, but in the UK the March distributive trades report may give us some timely evidence about the retail sales in March. In February, sales were very weak.
Last week’s sterling correction is over and the pair might be in for a test of the highs at 0.7913. The very tepid sterling correction last week shows how sterling negative sentiment is. Fundamentals (housing, economic growth, overextended consumer and the problems of the City) clearly support the weakening of sterling. So, we hold on to our long-term negative view for sterling. The risks for EUR/GBP are clearly to the upside, but after the sharp move in the past two days, the market may need to digest the sterling losses before attempting to break to new sterling lows.
Published on Thu, Mar 27 2008, 09:08 GMT
by KBC Market Research Desk
KBC Bank
Yesterday, EUR/USD continued its rebound and rose from about 1.5650 at the open to about 1.5850 into the close. It was the highest close ever and the pair has now approached the (intra-day) all-time high (1.5904). The contrast between better-thanexpected business sentiment data from a number of EMU countries and very weak US durable orders was behind the price action. More in particular, the IFO release pushed the pair noticeable higher. ECB governor Trichet showed concern about the strength of the euro when talking in the EU parliament. He said that “Excessive volatility and disorderly movements in exchange rates are undesirable for economic growth.” On the other hand, he continued to talk hawkish on rates because on the inflation concerns, that were once more highlighted yesterday when crude jumped about 5 $/barrel to about 106 $/barrel. Markets shrugged these currency warnings of Trichet off, as they feel that the contrast in economic data (see IFO) and in monetary policy on both sides of the Atlantic makes it difficult for policymakers to intervene with lasting results. It might offer speculators better entry levels to push EUR/USD again higher. Of course, one shouldn’t completely dismiss the possibility of interventions that may hurt speculators quite hard and with the 1.60 barrier approaching again at least talk about interventions will surely flare up. Overnight, EUR/USD eased on profit taking and trades currently around 1.5780.
The South Korean pension fund said that it stopped buying Treasuries because of its exposure and because of the low yields and instead looks to higher-yielding European government debt. While it is a relatively small player in FX, its attitude might be typical for more Asian investors.
Today, the US eco calendar is thin with the second revision of Q4 GDP unlikely to affect markets as it is outdated and the weekly initial claims. A large number of Fed governors will speak and will get an audience, but as they don’t directly address the dollar, an eventual effect should come from their remarks on the economy or credit crisis. The EU eco calendar contains no real market movers either, but markets will be attentive for ECB comments on the currency, especially following the ECB nonpolicy meeting. ECB governors Mersch and Wellink, two hawks, are scheduled to speak.
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. However, the fast pace of the recovery since early this week surprised us. Given this fast pace of the recent up-move and the looming all-time high of 1.8904, we suspect that some correction/consolidation is needed. So very short term players may want to sell the pair into strength. On the other hand, the short term picture remains euro bullish as long as above 1.5597 (MTMA). An eventual deeper retracement toward the 1.54/1.5340 area gives good euro entry levels for medium term players.
Looking at the graphs, the EUR/USD picture was euro constructive since the break above 1.4968/1.50. The latest correction drove the pair as low as 1.5341 in Monday’s thin trading, where the pair staged a powerful rebound threatening again the all-time highs at 1.5904. We suspect some renewed correction/consolidation is needed before the 1.60 might come under test, where Central Bank resistance may still become more vocal.
The USD/JPY pre-Easter rebound indeed ran out of steam, as the yen booked yesterday some additional gains. The driver behind the yen gains was generalized dollar weakness after the EUR/USD pair surged higher following the stronger IFO business sentiment. Later in the US session, EUR/USD continued to climb higher but USD/JPY stabilized. This meant that EUR/JPY moved mostly higher. Equity weakness played no meaningful role. In a daily perspective USD/JPY declined from 99.99 at the open to 99.19 at the close. Overnight, the yen tried to move higher against the dollar with an intra-day low of 98.57, but the yen gains have evaporated since and the pair trades around yesterday’s closing levels.
The Japanese Finance Minister said that a stronger yen will benefit the Japanese economy in the medium to long term, but it didn’t make much impression on traders. BOJ member Suda, seen as a policy hawk, said that the bank had still its sights set on raising rates from the current 0.5%, as monetary conditions are already very accommodative. However, he hedged his comment by adding that “what’s important is to share with markets the view that when negative economic signs become evident, the central bank will act quite decisively. So, concluding, Suda, the hawk, tried to warn markets that they shouldn’t count on a rate cut anytime soon. None of these comments affected yen trading in a sustainable way.
So also for USD/JPY, we got the pre-Easter dollar rebound we were looking at. The rebound extended to the obvious resistance that is at 101.40 (previous low), but it held and USD/JPY slid lower again. However, while EUR/USD is again at the highs, USD/JPY is still more than 2 yens from the lows. This might give the yen some leeway to outperform the euro against the dollar. We remain optimistic on the yen as long as the USD/JPY pair remains below 101.40 for a re-test of the cycle lows at 95.77.
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 went higher again and is approaching the highs. Generalized euro strength was a driver and the stronger IFO business sentiment was the trigger for euro strength. However, additionally, comments of BoE governor King were sterling negative. Indeed, King suggested that rates will be lowered further, even if it is not in the (aggressive) way the Fed is doing it. Listening to his speech, it is clear that he is very concerned with the credit crisis and is considering far-reaching measures to help the financial sector. This once more made clear that the UK, and the City, is one of the most hit by the crisis, a sterling negative factor. So, EUR/GBP moved from about 0.78 to 0.7890. Overnight, profit taking in euro also affected the EUR/GBP cross that trades marginally lower at 0.7871.
Today, the EMU calendar is thin, but in the UK the March distributive trades report may give us some timely evidence about the retail sales in March. In February, sales were very weak.
Last week’s sterling correction is over and the pair might be in for a test of the highs at 0.7913. The very tepid sterling correction last week shows how sterling negative sentiment is. Fundamentals (housing, economic growth, overextended consumer and the problems of the City) clearly support the weakening of sterling. So, we hold on to our long-term negative view for sterling. The risks for EUR/GBP are clearly to the upside, but after the sharp move in the past two days, the market may need to digest the sterling losses before attempting to break to new sterling lows.
Published on Thu, Mar 27 2008, 09:08 GMT
Labels: Markets, Technical Analysis
