Euro Recovers From Wednesday Declines But Offers Expected Above 1.4500

As investors fret over the health of the US economy some positive news has emerged from the EMU periphery this morning and has lifted the Euro to fresh corrective highs. The announcement came in the form of Greek agreement to new austerity measures totaling Eur 6.4billion in new savings from tax hikes, fewer tax exemptions, faster privatizations and cuts in government spending. The final draft of these measures are set to be presented to EU Juncker tomorrow, coinciding with the EU/IMF/ECB mission to Greece completing its latest round of checks on fiscal consolidation efforts in the beleaguered Eurozone peripheral nation.

Relative Strength Versus the USD on Thursday (as of 10:45GMT)

1. EUR +0.99%
2. AUD +0.46%
3. GBP +0.37%
4. JPY +0.27%
5. NZD +0.18%
6. CHF +0.17%
7. CAD +0.03%

Safe haven currencies are keeping their bid tones as investors continue to seek safety from the turbulence in the EMU and are wary of fickle markets that can often react in an exaggerated fashion to official speak. As such the Swiss Franc remains near its fresh record highs against the US Dollar and Euro, while the Yen sticks close to the 81.00 mark.

Elsewhere, the only piece of data released today in Europe, due to the EMU being closed for Ascension Day, was the UK construction PMI reading which was firmer than forecast and gave the pound a healthy boost. Comments from BoE Fisher that he would consider expanding the central banks asset purchase program if the recent run of softer data didn’t end soon, were not seen deterring Sterling gains.

Looking ahead, we have a busy US economic calendar with weekly jobless claims, unit labor costs (0.8% expected) and non-farm productivity (1.7% expected) at 12:30GMT. This is followed by factory orders (-1.0% expected) at 14:00GMT and capped off with oil inventory data at 14:30GMT. US futures have erased early losses to point to a higher open while commodities trade little changed.

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: 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. Wednesday’s bearish price action helps to confirm negative outlook and we look for a close below 1.6250 to provide added confirmation. Ultimately, only back above 1.6550 negates.

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. Nevertheless, we will look for some kind of bullish confirmation before considering the long, and at a minimum, would like to see a break back above 0.8550 to encourage basing prospects. Until then we recommend standing aside.

FLOWS

A large Asian account, spec players, and model types all on the bid in Cable with real money accounts leading offers. A major US name as led demand this morning in Eur/Usd, a sovereign name is also noted. Talk of a large RHS fix having gone through Eur/Gbp.

Written by Joel Kruger, Technical Currency Strategist

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