Currencies Round up - US dollar under pressure

Date: Friday 30 Jul 2010

The single currency has continued to make gains against the sickly greenback on the back of improved confidence in Europe and more specifically Germany, as unemployment decreased yesterday, while consumer confidence improved to the highest level in more than two years.

The gains in the Euro were slightly offset by speculation that the Swiss National Bank was buying back Swiss francs and selling euros in an attempt to lighten its recent accumulation of euro holdings.

However US dollar weakness also played its part with continued weak economic data continuing to act as a drag on the dollar, with weekly jobless coming in only slightly better than expected at 457k, against an expectation of 460k.
The greenback was not helped by an interview given yesterday by Moody’s lead sovereign analyst suggesting that the US needs to articulate a credible plan to tackle its huge budget deficit, or face the threat of losing its triple AAA rating in the coming years.

Today could be a key turning point for risk appetite with the release of US Q2 GDP data which is expected to come in around 2.5%, though some analysts have suggested that a figure of 2.8% is likely.

Given the propensity for recent US economic data to disappoint, that upbeat assessment looks a little on the generous side. One thing is certain anything significantly less than 2.4% could signal further risk aversion and a slide in equity markets and a rotation of capital back into less risky assets.
EURUSD – yesterday’s rally towards 1.3105 stopped just short of the 1.3125 38.2% Fibonacci level. This remains the key target while above the 1.2950 area. A close above 1.3125 would target the 1.3500 area which is the 50% retracement level of the 1.5145/1.1880 down move. On the other hand a break of 1.2950 would open a test towards the 1.2840/50 level. A break below last Friday’s lows around 1.2840/50 re-targets the 1.2730/40 area.
GBPUSD – the pound continues to make new highs with 1.5665 yesterday as it looks to push towards 1.5870 the 61.8% retracement level of the down move from 1.6880 to the May lows at 1.4230. The cable needs to hold above the 1.5520/50 support area in the near term to prevent a deeper downward correction towards the 1.5330/40 area, but with momentum starting to become a little stretched there is a possibility we could see some sharp pullbacks in the interim.
Long term trend line support levels, remain around the 1.5250/60 area, from the June lows at 1.4350.
EURGBP – pretty much as you were on the euro here, stuck in a range between the pivotal resistance at 0.8400/10 area and the support around the 0.8320 area.
There does however appear to be a head and shoulders top building up here over the last 2 weeks with a horizontal neckline at 0.8315 which could produce a significant move.
Only a break back above the 0.8400/10 level diminishes the risk of a downside correction.
A break below the 0.8315 neckline targets 0.8240, and then 0.8100, while 0.8410 caps.
USDJPY – the failure on Wednesday to overcome the 88.00/10 level keeps the focus solidly on further yen gains in the short term and also keeps up the pressure on the Bank of Japan with respect to monetary policy. A close above here would signal dollar gains back towards 89.20/30.
While on the downside the 86.25 support remains the key obstacle towards further yen gains towards last year’s yen highs at 84.80. A break above 88.00/10 would re-target the 89.20/30 level while a break of 84.80 would look to target the 1995 lows below 80.00.
(Source: Digitallook)