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Euro Starting to Struggle Above 1.4600 As Fundys Weigh; RBA Cautious
Written by article default Tuesday, 07 June 2011 09:55
The Euro has been struggling a bit to hold onto gains above 1.4600, with a report that Germany is holding back on its decision over the Greek bailout and comments from EU Juncker that the Euro is overvalued viewed as the primary source for the most recent offers in the market. A bout of softer global economic data has also weighed on sentiment and could open the door for a more significant round of risk selling over the coming sessions. Yet another Euro negative event on Tuesday has been the release of a UK Telegraph article which warns that the ECB is looking increasingly vulnerable” and may face “hefty losses” from attempting to prop the distressed Eurozone economies.
Elsewhere, the RBA was out with its latest decision on rates and as expected left the cash rate unchanged at 4.75% for the 7TH consecutive month. While the bulk of the accompanying statement was the same as previous, there were some underlying hints at a more cautious central bank which managed to inspire some fresh offers back under 1.0700 after the decision. The mention of softening commodities, an easing in employment growth and Eurozone sovereign debt uncertainties clearly reflected a more balanced outlook from the central bank and lent support for some relative intraday underperformance in the Aussie market. Also out in Asian trade was a slightly improved (but still well below 50.0) Aussie performance of construction, and much weaker UK BRC sales.
Looking ahead, Swiss inflation readings, Eurozone retail sales and German factory orders take center stage in the European session, while US consumer credit and the highly anticipated Bernanke speech stand out in North American trade. Bernanke’s comments will take on added meaning following the much weaker US employment report in the previous week. Market participants have resurrected the talk of QE3 and any sign from the Fed Chair that this would be a possibility could send the US Dollar into another tailspin. US equity futures are tracking slightly higher, while commodities are mixed with oil offered and gold flat.
ECONOMIC CALENDAR
TECHNICAL OUTLOOK
EUR/USD: The market is once again very well bid with the latest gains managing to accelerate beyond resistance in the lower 1.4500’s and into the 1.4600’s thus far. From here, we still retain an overall bearish bias, but would look for gains to potentially extend some more towards the 78.6% fib retrace off of the major 1.4940-1.3970 move by 1.4730 before considering the possibility for bearish resumption. Back below 1.4450 would now be required to relieve immediate topside pressures.
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 in the 80.00’s and could be in the process of carving out some form of a base. Look for setbacks to continue to be well supported by 80.00 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: Rallies have been very well capped in the 1.6500’s with the market looking like it wants to carve out a fresh lower top by 1.6550 ahead of the next downside extension below 1.6060. A break back below 1.6285 will reaffirm outlook and accelerate declines, while only back above 1.6550 negates and gives reason for pause.
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 0.8400. Daily studies are however still looking quite stretched to us, and we continue to like the idea of taking shots at buying in anticipation of a major base. Look for a break and close back above 0.8450 to encourage bullish reversal prospects, while a drop below 0.8300 delays.
Written by Joel Kruger, Technical Currency Strategist
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