Date: Wednesday 21 Jul 2010
The single currency was initially buoyed yesterday morning by successful Spanish and Greek T-Bill auctions, sending it to its highest level since early May.However this initial buoyancy was soon derailed by sovereign debt worries outside the euro zone when Hungary upped the ante with its battle with the International Monetary Fund by cutting back its Treasury bill offering by 10bn forints to 35bn. This sent the euro sharply lower throughout the day.
The pound also continued its slide lower, after the latest UK public finance data came in at £14.5bn for the month of June, above consensus estimates, and re-focussed the markets attention on the level of the UK’s fiscal problems. The pound later recovered, specifically against the euro as it slipped back on sovereign debt concerns.
The pound will continue to be in the spotlight today with the release of the latest Bank of England Monetary Policy Committee minutes for June, which is expected to reveal that Andrew Sentance once again voted for a rise in rates, which probably won’t be a surprise as he voted for a rise in May. Any likelihood that other members of the committee are starting to share his concerns could see sterling receive a short term boost.
In the US Federal Reserve Chairman Ben Bernanke will be giving testimony where he will no doubt be quizzed on last weeks downward revisions of US growth forecasts, by the Federal Open Market Committee (FOMC), as well as a market rumour last night that the Fed was considering putting a stop to paying interest on bank reserves in an attempt to force them to lend.
Any indication that the Fed will start to consider any form of fresh stimulus in the coming months will weigh on the dollar and could well limit its upside in the short term.
EURUSD – the euro had another crack at the 1.3000 resistance area yesterday but was again rebuffed, though it did make a new high at 1.3030 before falling back.
That failure saw the single currency test back towards the support at around this weeks lows around 1.2870/80, spilling over slightly to 1.2840 before rebounding. A break of this support could target a deeper correction back towards the 1.2750/60 area, but while this level holds the next price objective in the medium term lies at 1.3125 which is the 38.2% retracement of the down move from the highs at 1.5145 to the 1.1880 lows. A move below 1.2750/60 targets 1.2550.
GBPUSD – the pound fell a bit further yesterday hitting a low of 1.5155 before rebounding. There are a number of support levels coming into play between 1.5070 and 1.5120 which need to hold to maintain the momentum of the recent gains.
We need to see a rally hold above 1.5300 to stabilise in the near term, to keep alive the scenario for a test towards 1.5610 which is the 61.8% retracement of the down move from the 2010 peaks at 1.6460 to the lows at 1.4230.
EURGBP – another test of the highs this week at 0.8520/30 was rebuffed and has seen a correction lower towards the previous breakout level around the 0.8400/10 area. This area needs to hold for further gains towards 0.8610, which would be a 50% retracement of the down move from the 0.9150 highs to the June lows at 0.8068. Any move below the 0.8400/10 re-targets the 0.8320/30 level.
USDJPY – the lack of follow through on the downside beyond the 86.30 lows suggests nervousness about overly aggressive dollar selling at these levels. The 88.00/10 resistance area remains key with respect to a move to last year’s yen lows at 84.80. Nervousness about possible Bank of Japan intervention will continue to hang over the market given the concerns about the strength of the yen on Japanese exporters, who become less competitive as a result. However dollar upside against the yen will remain limited while risk aversion and concern about fresh stimulus measures weighs. Bernanke’s comments on this today will be key given last weeks FOMC minutes.
Any rallies need to overcome the pivotal 88.00/10 area to stabilise and re-target 89.20, a break of which would re-target the 90.00 area.
Any rallies need to overcome the pivotal 88.00/10 area to stabilise and re-target 89.20, a break of which would re-target the 90.00 area.
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