Currencies Round up - Euro holds above 4 year lows, but remains under pressure

Yesterday’s euro decline was sparked by an IMF report that Spain’s banking industry “remains under pressure.”

The report went on to say that the country’s labour markets are dysfunctional and the economy bears “heavy” debt burdens in the private sector as well as externally. This fuelled fears amongst investors that Spain might need a bail-out of its own, and sent equities and the single currency lower. These fears were only heightened when four regional savings banks in Spain said on Monday that they had reached a preliminary agreement to merge some operations, in an effort to shore up their balance sheets.

However these losses were pared back in late trading as profit-taking, and an equity market pull back saw the Euro stage a recovery. One of the reasons for the pullback was comments by St. Louis Fed President Bullard that the current sovereign debt problems in the Euro zone could be contained.

Nevertheless investors remain concerned about the stability of the European banking system, and the financial viability of sovereign governments. Bank borrowing costs (Libor) continue to rise and have risen to their highest levels since July last year on concerns about the integrity of the European banking system.

While on the Korean peninsula tensions remain high as North and South Korea indulge in mind games as a result of the fall-out of the sinking of a South Korean warship.

The US dollar has continued to benefit from its recent safe haven status pushing near to one year highs against a basket of currencies.

Sterling has also remained fairly well supported on its trade weighted index, near one week highs. UK GDP figures came in as expected at 0.3% pushing UK gilt prices to one year highs.

EURUSD – the Euro fell back just short of its recent lows yesterday at 1.2140 rebounding from the 1.2180 area and testing back towards the 1.2400 area into the New York close. The 1.2450/60 break-out level, remains the key barrier to further Euro gains in the short term. A break and close below 1.2135 50% retracement level support would suggest a move towards the 1.1700 level and 2005 lows. A break back above 1.2450/60 re-targets 1.2700.

GBPUSD – the 1.4230/50 area continues to stem any further sterling declines in the short term. This key support level remains the key obstacle to a test of the next support around 1.4110 which is the 30th March 2009 lows on the way to a test of 1.4000. 1.4000 remains a key support on a monthly close. 1.4500/20 remains the key obstacle to a test of 1.4780 and 1.4850.

EURGBP – the Euro has so far managed to hold above the 0.8500 support area rebounding from the 0.8510 level. A break this support at 0.8500 should re-target the lows around 0.8400, and then a break lower towards 0.8250.
A move back above 0.8620 would re-target 0.8670 and then trend line resistance at 0.8770.