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Euro Relents Ahead of North American Open As Peripheral Concerns Weigh
Written by article default Wednesday, 01 June 2011 11:49
The Euro has come back under a bit of pressure as we head into the North American open, with the currency dropping below 1.4400 after trading above the figure for much of the day. Reports that the IMF and Germany would not contribute to additional Greek aid were seen as the primary drivers for the Euro selling, while a softer round of economic data out of the region helped to fuel additional offers. Eurozone PMIs came in weaker than expected, while the Pound was also under some intense pressure of its own on the back of its disturbing PMIs. This was the weakest UK manufacturing PMI since September 2009.
Relative Performance Versus the USD on Wednesday (as of 11:00GMT)
- CHF +0.84%
- AUD +0.56%
- JPY +0.21%
- CAD +0.03%
- EUR -0.02%
- NZD -0.07%
- GBP -0.18%
The diminished risk appetite resulting from the above developments was also seen generating a heavy round of bids back into the Franc, which traded back towards record highs against both the Euro and USD. The Franc had already been benefitting earlier in Europe on some very well received retail sales and PMI numbers. This should continue to put pressure on an SNB that will grow even more uncomfortable with the relative strength in its currency. Elsewhere, the commodity bloc held up quite well despite the pullback in risk, with Aussie outperforming on the day following some as expected China PMIs and upbeat comments from Treasurer Swan. This helped to inspire a fresh round of buying back above 1.3000 in the AUD/NZD cross which had been hit hard in recent days.
Looking ahead, US ADP employment, ISM manufacturing and construction spending are the key economic releases due in North American trade. However, market participants remain very focused on broader global macro themes and developments, and this should have an even larger influence on market direction. US equity futures and oil prices have reversed course and are tracking lower, while gold remains offered as well.
ECONOMIC CALENDAR
TECHNICAL OUTLOOK
EUR/USD: In the process of a corrective bounce following a 10 big figure drop in May with the market rallying from below 1.4000 and in search of a fresh lower top ahead of the next major downside extension below 1.3970. From here, look for any rallies to be well capped in the 1.4400-1.4550 area, with only a break back above 1.4550 negating negative outlook and giving reason for concern. Back below 1.4255 confirms and should accelerate declines.
USD/JPY: After undergoing a fairly intense drop off from the 85.50 area several days back, the market looks to have finally found some support by the bottom of the daily Ichimoku cloud and could be in the process of carving out some form of a base. Look for setbacks to continue to be well supported in the 80.00’s with only a close back below 79.50 to give reason for concern. From here we see the risks for a fresh upside extension back towards the recent range highs at 85.50 over the coming weeks.
GBP/USD: The 100-Day SMA has proven to be formidable support for the pair, with the price rallying substantially out from the 1.6060 lows to trade back above 1.6500. However, we would expect rallies to now be well capped below 1.6600 on a daily close basis. Look for a lower top in the 1.6500 area ahead of the next major downside extension below 1.6000 over the coming days. Ultimately, only a daily close back above 1.6600 would negate outlook.
USD/CHF: The latest minor recovery has proved to be just that, with the market finding a fresh lower top ahead of 0.9000 in favor of a drop to yet another record low below 0.8500. Daily studies are however still looking quite stretched to us, and we continue to like the idea of taking shots at buying on dips in anticipation of a major base. Look for current declines to hold around the 0.8500 area and a break back above 0.8740 to encourage basing prospects and open the door for the potential formation of a major interday double bottom (neckline by 0.8950) projecting gains back towards 0.9500. A daily close below 0.8400 would negate.
FLOWS
A model fund has been a dip buyer in Eur/Usd and specs have been initiating fresh shorts. A macro fund has pared longs in Eur/Jpy. European CBs have been seen once again buying in Eur/Gbp.
Written by Joel Kruger, Technical Currency Strategist
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